What's new

Shanghai International Airport recently announced a revised draft of its restricted stock incentive plan for A-shares. Compared with the original plan released on May 15, the new plan has changed the source of new shares to share repurchase from the secondary market rather than targeted issuance. In addition, the firm added supplementary notes to the rationality of performance evaluation indicators and updated the annual amortization amount. Other key terms and unlocking conditions of the restricted stock incentive plan remain unchanged (no more than 10.51mn restricted A-shares are to be granted to directors, senior managers, and other key employees, up to 300 in total).

The firm also announced a plan to buy back its shares through centralized bidding. It intends to use its funds to buy back 5.25-10.51mn shares (0.21-0.42% of the current total shares) for equity incentives at a maximum price of Rmb50.46/sh, with the total amount of repurchase shares not exceeding Rmb530mn.

Comments

We believe the share buyback shows confidence in the firm's growth. By shifting the source of new shares for the incentive plan to repurchasing shares from the secondary market, the management demonstrates its confidence in the firm's long-term value and prospects. The plan may motivate as well as constrain directors, senior managers, and other key employees in the medium and long term, aligning their interests more closely with the firm's long-term development.

Tourist traffic improves steadily in summer; watch DFS business. According to estimates from CAAC News (link in Chinese), Pudong International Airport and Hongqiao International Airport are expected to serve 13.89mn and 8.31mn passengers in the summer, up 20% and 9% YoY, equivalent to 103% and 107% of the same period in 2019 (vs. recovering to 97% and 104% of the same periods in 2019 in June 2024). This indicates a steady improvement in passenger traffic in the peak season.

Affected by changes in the market environment and competitive dynamics within the duty-free shopping (DFS) industry, the business channel of the DFS industry has shifted from being concentrated around ports to a multi- channel strategy combining offshore stores, port facilities, urban retail stores, and e-commerce platforms. Competition in the DFS market at ports has become increasingly fierce. We suggest monitoring the sales performance of the company's DFS business.

Financials and valuation

We keep our earnings forecasts unchanged. The stock is trading at 33.2x 2024e and 25.8x 2025e P/E. We keep our TP unchanged at Rmb38 (35x 2024e P/E), offering 6.5% upside. Maintain OUTPERFORM.

Risks

Disappointing recovery of international routes; higher-than-expected capex; disappointing sales of duty-free stores.