1H25 results largely in line with our expectations

The firm announced its 1H25 results: Revenue rose 4.78% YoY to Rmb6,353mn, and attributable net profit grew 28.14% YoY to Rmb1,044mn. In 2Q25, revenue rose 4.84% YoY and 0.28% QoQ to Rmb3,181mn, and attributable net profit grew 22.39% YoY and 1.19% QoQ to Rmb525mn.

Business volume grew steadily in 1H25, but the growth of non- aviation businesses was slightly weak. In 1H25, the firm's aviation

business revenue rose 8.35% YoY to nearly Rmb2.92bn, mainly driven by recovering airport business volume. Aircraft movements at the two airports in Shanghai rose 5% YoY in 1H25, and passenger throughput grew 9% YoY, with passenger volume of domestic and international routes rising 4% and 21%. In 1H24, revenue from non-aviation businesses rose 2% YoY, with commercial catering and logistics services up 2% and 1% YoY. We think the slower growth of commercial catering was still dragged by the duty-free business. The airport duty-free business recognized rentals of Rmb285mn in 2Q25, down 5% YoY.

1H25 operating cost rose slightly YoY; investment income improved.

The firm's operating costs and expenses rose 1% YoY in 1H25, with labor, amortization, and operation and maintenance expenses staying largely flat YoY, boosting its operating leverage. In 1H25, the firm's investment income rose 27% YoY to Rmb457mn, mainly thanks to improved investment income from Shanghai Pudong International Airdrome Aviation Oil Plants, Lianyi Investment, and Shanghai Free Trade Zone Equity Investment Fund Phase III. Sunrise Shanghai and Sunrise China contributed investment income of Rmb49mn and Rmb20mn, vs.

Rmb97mn from Uni-Champion in the same period last year.

Trends to watch

Watch the new round of DFS contracts. According to the firm's

announcement on July 21, 2018 (notice of winning bid for airport DFS), we expect the firm's current duty-free contract with Sunrise Duty Free to expire at the end of 2025, and we suggest watching progress in the next phase of the contract.

Financials and valuation

We keep our 2025 and 2026 earnings forecasts unchanged at about Rmb2.26bn and Rmb2.74bn. The stock is trading at 35.6x 2025e and 29.3x 2026e P/E. We maintain an OUTPERFORM rating and target price of Rmb34.5, implying 38x 2025e and 31x 2026e P/E, offering 7% upside.

Risks

Disappointing recovery of passenger traffic and/or development of the DFS business; sharper-than-expected cost growth.