2024 results in line with market expectations;1Q25 results slightly beat market consensus

The firm announced its 2024 and 1Q25 results: In 2024, revenue rose 12% YoY to Rmb12,369mn; net profit attributable to shareholders grew 107% YoY to Rmb1,934mn; and recurring net profit grew 70% to Rmb1,409mn, with non-recurring gains mainly from compensation of housing expropriation. The 2024 results in line with market expectations.

In 1Q25, revenue rose 5% YoY to Rmb3,172mn and net profit grew 35% YoY to Rmb519mn, slightly beating market expectations due to slightly lower-than-expected growth in operating cost.

Steady recovery of tourist traffic boosts revenue growth. The firm's

aviation revenue grew 27% YoY in 2024, implying YoY growth of 15% in aircraft movements and 29% in passenger throughput in 2024. In 1Q25, aircraft movements and passenger throughput rose 3% and 8% YoY.

Non-aviation business relatively weak in 2024; DFS rents have gradually recovered QoQ since 2H24. In 2024, the firm's non-aviation

business grew 2% YoY, with revenue from commercial catering and logistics services -15% YoY and +13% YoY. We attribute the weak performance of commercial catering to falling rents from duty-free shops (DFS), as the firm's contracted DFS revenue fell 32% YoY to Rmb1,212mn in 2024. In 3Q24, 4Q24, and 1Q25, the firm recognized DFS rents of Rmb267mn, Rmb297mn, and Rmb343mn. Considering the firm's international customer traffic, we estimate that per-customer transaction related with DFS gradually stabilized and rebounded QoQ.

Cost control effective; investment income grows rapidly. In 2024, the

firm's operating costs rose 5% YoY, slower than the growth of business volume, driving operating leverage. G&A expenses rose 30% YoY in 2024, mainly because operating management personnel and expenses increased as business volume recovered. Investment income rose 21% YoY to Rmb800mn, with Rmb402mn contributed by aviation fuel companies and Rmb193mn contributed by Uni-champion, Sunrise Shanghai, and Sunrise China combined. The firm's operating costs remained largely flat YoY in 1Q25.

Trends to watch Keep an eye on the progress of the Phase IV airport project.

According to the Shanghai SASAC, the commencement ceremony for the main body of terminal expansion for Pudong Airport Phase IV was held in December 2024 at the construction site of the terminal area. The Phase IV project is invested by the Pudong Airport Group. Its construction officially started in January 2022 and is scheduled to be completed in 2028.

Financials and valuation

We cut our 2025 earnings forecast 9% to Rmb2,261mn, as we lower our assumption for per-customer duty-free sales. We introduce our 2026 earnings forecast of Rmb2,742mn, assuming the firm’s passenger traffic rises 4% YoY. The stock is trading at 35.4x and 29.2x 2025e and 2026e P/E. Maintain an OUTPERFORM rating. We cut our target price 9% to Rmb34.5, implying 38x 2025e P/E and 31x 2026e P/E and offering 7% upside.

Risks

Disappointing recovery of tourist traffic and/or DFS business; higher-than- expected cost growth.