Preannounced 2023 net profit slightly beats market expectation

Guangzhou Baiyun International Airport preannounced its 2023 results, estimating that its net profit attributable to shareholders reached Rmb438- 536mn in 2023 (vs. -Rmb1.07bn in 2022). The firm estimates its 4Q23 attributable net profit totaled Rmb164-261mn (vs. Rmb116mn in 3Q23 and -Rmb444mn in 4Q22). The firm’s 4Q23 preannouncement slightly beat market expectations, thanks to better-than-expected cost control and/or non-aviation business revenue.

Trends to watch

Recovery of 4Q23 operating data weakens slightly; recovery of international flights strengthens. In 4Q23, the firm's overall, domestic, and international passenger throughput recovered to 89%, 99%, and 59% of the 4Q19 levels, with the level of recovery down 3ppt, 6ppt, but up 4ppt QoQ. Recovery of demand for domestic flights slowed slightly in the slack season, while recovery of international flights continued. Passenger volume of international flights in December recovered to 61% of the 2019 level.

Construction of the Phase III project continues. Terminals 1 and 2 of Baiyun Airport are now connected after East 4 and West 4 corridors were put into operation on December 31, 2023. The firm expects to complete the construction of the main building of Terminal 3 in January 2024.

The firm announced at its 3Q23 results meeting that the legal person and investor of the Phase III project is its parent company. We suggest watching the impact of the Phase III project on the cost of the listed company.

Financials and valuation

We keep our 2023 earnings forecast unchanged at Rmb453mn. We cut our 2024 earnings forecast 9% to Rmb1.20bn, as we lower our assumptions for passenger throughput growth and per-customer sales of duty-free business. We introduce our 2025 earnings forecast of Rmb1.24bn, as we expect passenger throughput of domestic and international flights in 2025 to grow 19% and 3% compared with 2019. The stock is trading at 48.8x 2023e, 18.4x 2024e and 17.8x 2025e P/E. We cut　our target price 10% to Rmb12.9, implying 25x 2024e P/E (the firm's historical average), offering 38% upside. Maintain OUTPERFORM.

Risks

Disappointing passenger demand and/or duty-free business development; higher-than-expected incremental cost from Phase III project.