2023 and 1Q24 results largely in line with our expectations Guangzhou Baiyun International Airport announced its 2023 and 1Q24 results: In 2023, revenue rose 62% YoY to Rmb6.43bn, and net profit attributable to shareholders was Rmb442mn (vs. -Rmb1.07bn in 2022). In 1Q24, revenue fell 9% QoQ but rose 22% YoY to Rmb1.66bn, and attributable net profit was Rmb188mn (vs. Rmb168mn in 4Q23 and Rmb45mn in 1Q23). The firm's results were largely in line with our expectations.

Aviation and non-aviation revenue grew 102% and 44% YoY in 2023; cost control effective. Thanks to the substantial recovery in operations, the firm's revenue related to aircraft movement and passenger transiting or transferring rose 61% and 146% YoY in 2023 (vs. 71% and 142% YoY growth in aircraft movement and passenger throughput in 2023).

In 2023, the firm's revenue from leasing and concession, aviation ground and catering services, and other non-aviation businesses grew 24%, 61%, and 54% YoY, underperforming the YoY growth of aviation business volume. Revenue from the advertising business fell 11%, which we attribute partly to rent reductions for advertising and contract renegotiations. The firm's operating cost rose only 3% YoY in 2023, remaining relatively stable despite notable recovery in business volume, in our view.

Passenger traffic continued to recover in 1Q24; cost control effective. The firm's passenger throughput grew 43% YoY and 16% QoQ in 1Q24, recovering to 108% of the 2019 level. Domestic and international passenger throughput recovered to 121% and 69% of the 2019 levels. The firm's YoY and QoQ revenue growth was weaker than passenger volume growth, possibly due to lower revenue growth of several non-aviation businesses, in our view. The firm's operating costs rose 10% YoY and fell 12% QoQ to Rmb1.24bn in 1Q24.

Trends to watch

Watch progress of Phase III project. Terminals 1 and 2 of Baiyun Airport are now connected after East 4 and West 4 corridors were put into operation on December 31, 20231. Meanwhile, the firm completed the construction of the main building of Terminal 3 in January 20242. According to the Department of Transport of Guangdong Province, Terminal 3 may be ready for operation in December 2025. Upon its operation, the firm’s annual passenger throughput capacity is likely to reach 120mn passengers3.

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 revenue and costs of the listed company.

Financials and valuation

We keep our 2024 and 2025 earnings forecasts unchanged at Rmb1.20bn and Rmb1.24bn. The stock is trading at 20.8x 2024e P/E and 20.1x 2025e P/E. We maintain an OUTPERFORM rating and TP of Rmb12.90, implying 25x 2024e P/E with 22% upside.

Risks

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