Beijing Capital International Airport: A Stock To Buy On Explosive Growth In China

seekingalpha09-12

Beijing Capital International Airport shows significant recovery potential with combined capacity of 200 million passengers, driven by growth in international traffic and non-aeronautical revenues....

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With this report, I am adding the first airport name in China, namely Beijing Capital International Airport (OTCPK:BJCHY)(OTCPK:BJCHF). I will be discussing some details about the company, the most recent earnings, provide a risk assessment and conclude with a stock price target and rating. Beijing Capital International Airport: Capacity To Grow To More Than 200 Million Passengers Beijing Capital International Airport is one of the two main airports for the city of Beijing. The airport processed 52.9 million passengers in 2023, making it the 23rd busiest airport in the world. However, that marks a recovery in passenger traffic of little over 50% as the undisturbed passenger traffic for the airport was visible in 2019 when it processed more than 100 million passengers, making it the second-busiest airport in the world. In 2019, Beijing Daxing International Airport commenced operations and by 2023, it processed 39.4 million passengers bringing the Beijing traffic to 92.3 million passengers and marking a recovery of passenger traffic of over 90%. The opening of Daxing Airport should not be viewed as competition to Beijing Capital International Airport as Beijing Capital International Airport Company Limited operates Daxing as well as Beijing Capital International Airport which provides a combined capacity for more than 200 million passengers when fully developed. Pre-pandemic, the expectation was that by 2040 demand for air travel in Beijing would reach 235 million, so these two airports will be serving passengers in parallel rather than the new airport replacing the older airport and development to expand the Daxing Airport will likely take place eventually. So, competition is not a main risk and the main risk would be a global economic downturn or anything that would be similar to the pandemic while in the long-term traffic growth should positively impact revenues. Beijing Capital International Airport Losses Narrow BCIA Total revenues increased 35.2% with aeronautical revenues growing 41.3% and 30.1% growth for non-aeronautical revenues. The growth in aeronautical revenues was driven by 31.5% more aircraft movement fees as aircraft movements grew 20% and passenger service fees revenues increased 54% on a 41.6% higher throughput. Both the aircraft movement and passenger traffic component saw revenue growth in excess of volume growth, which was driven by a significant growth in international traffic. The non-aeronautical revenues saw significant growth driven by higher retail and restaurant revenues as traffic flows increased, more shops and restaurants reopened, and new agreements went into effect. Operating expenses grew only 5% driven by higher maintenance costs, utilities and concession and management fees. As costs growth was less than top-line growth, we saw the operating margins improve from a 42.5% loss margin to a 9.6% loss margin. So, the business is still loss making, but further traffic growth should significantly narrow the losses. Beijing Capital International Airport Company Stock Has Upside The Aerospace Forum To determine multi-year price targets The Aerospace Forum has developed a stock screener which uses a combination of analyst consensus on EBITDA, cash flows and the most recent balance sheet data. Each quarter, we revisit those assumptions, and the stock price targets accordingly. In a separate blog I have detailed our analysis methodology. Before I comment on the valuation of the stock, I want to point out that the stock price targets are based on the listing in Hong Kong which provides better volumes than the alternative OTC tickers. The listing in Hong Kong under the ticker 694:HK provides volumes running in the millions rather than BJCHY which has volumes of hundreds of units every few days. The BJCHY ticker represents 5 ordinary shares, contrary to BJCHF which represents one ordinary share but has higher volumes allowing for better selling and buying in desired quantities and desired prices. So, if you want to translate the price targets projected to price targets for BJCHY, multiply the target by five. While BCIA is still loss making, on EBITDA basis the company is profitable and in the years ahead profitability is expected to climb from $23.4 million to $349 million while FCF is expected to climb from -$118.9 million to $241.5 million, so there definitely is strong improvement in the results ahead. For 2024, the stock is overvalued but at this stage I do believe that one should look at the year ahead which would imply 28% upside to $1.80 for the BJCHY ticker while still remaining undervalued compared to peers. Conclusion: BCIA Offers Significant Upside On Huge Uptick In Travel Demand Currently, BCIA is still loss making, but we did see that cost control is good and most of the costs are uncoupled from volume growth. That means that as traffic continues to grow, the margins should expand significantly and what BCIA definitely has is growth ahead as the airports of Beijing are expected to process over 200 million passengers eventually, which doubles the traffic flow from pre-pandemic times. As a result, I do believe that the stock is a buy.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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