Corporate China
Capital Airports Holding Company
Ratings Overview
Issuer Rating . Pengyuan International has assigned a first-time global scale long-term issuer LT Issuer Credit Rating A- credit rating (LTICR) of “A-“ to Capital Airports Holding Company (CAH), with a stable outlook.
Outlook Stable . The rating reflects CAH’s position as China’s leading airport business: the Group operates one of the most strategically important airports in China, and the new addition of Daxing International airport may open up new business and growth potentials.
Contents . Founded in 2002 and headquartered in Beijing, Capital Airports Holding Company is subordinated to the Civil Aviation Administration of China. Through its subsidiaries, the Group mainly engages in airport management, Key Rating Drivers ...... 1 airport construction, logistics, real estate, hotel management and financial Business Profile……………………...3 investment. The Group manages 54 airports in seven provinces and autonomous regions, including Beijing, Tianjin, Hebei, Jiangxi, Jilin, Inner Financial Profile……………………...7 Mongolia and Heilongjiang. By passenger traffic, the Group is one of the Liquidity ...... 8 largest airport management groups in the world. Company Background ...... 9 Rating Outlook Peer comparison...... 10 . The stable outlook for CAH reflects Pengyuan International’s expectation that Rating Scores Summary ...... 12 the Group will be able to maintain its market position as one of the leading Related Criteria ...... 12 airport groups in the world, buoyed by its strong regional advantage and efficient cash flow management. Pengyuan International expects the Group to remain a direct affiliate of the Civil Aviation Administration of China. . We would consider downgrading CAH’s issuer credit rating if its credit profile Contacts deteriorates substantially, which could be caused by: 1) a significant decrease in passenger traffic and cargo market share; 2) weakening willingness from the central government to support the Group; and 3) substantial deterioration Primary Analyst in the Group’s financial profile. Name Jonathan Joseph Tai, CFA Title Analyst . We would consider upgrading CAH’s issuer credit rating if its credit profile Direct +852 3615 8276 improves substantially, which could be caused by strengthened ties with the Email [email protected] central government.
Secondary Analyst Financial Summary Name Brian Lam Title Director Exhibit 1: Financial Ratios Direct +852 3615 8339 2019A 2020A 2021F 2022F 2023F Email [email protected] Debt/EBITDA NC NM N.M 5.45x 4.74x EBITDA Interest Coverage 3.39 N.M 0.00 1.88 2.51 Gross Debt/Capitalisation 25.52 28.19 30.78 32.68 34.35 FFO/Debt NC -84.9% -4.9% 14.1% 17.0% OCF/Debt NC -45.4% -34.9% 6.5% 10.8% FCF/Debt NC -144.2% -69.8% -26.4% -16.3% ROIC 5.6% -6.0% -5.0% -1.6% -0.4% NC=Net Cash, NM= Not meaningful Sources: Group, Pengyuan International
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Key Rating Drivers
Credit Strengths
Important industry position and leading scale advantage. In normal business conditions, the Group has reported almost 40% higher in revenue and has nearly doubled the passenger traffic than the second largest airport. The Group has an airport portfolio focusing on the northern region of China, and has a total of 54 airports. Notably. Beijing Capital Airport, one of the Group’s subsidiaries and one of the most important airport hubs in China, ranks first in terms of passenger and air traffic, and second in terms of air cargo delivered in FY2019 or normal business conditions. With the commencement of Daxing International Airport, the Group’s long-lasting operating capacity problem has been relaxed and it has opened up a lot of synergistically real estate and airport operation business potential.
Strong governmental connections and importance with the aviation authority of China. Fully-owned by the Civil Aviation Administration of China, the Group has been long-time receiving government support in the form of income, tax cuts and direct asset injections. We see the government’s strong influence over CAH’s long term strategies, by appointing board members and senior management to the Group. The Group’s control over the two Beijing airports – with Beijing Capital being one of the most important airport hubs in China – solidifies its importance to the government. In addition, the Group’s products and services represent an image of China, and it is also strategically important for the region’s economic development, and in some occasions vital for national security. Given its strong ties with and importance to the government, we expect CAH to continue to receive government support in distressed situations.
Maintain solid leverage and liquidity profile amid the epidemic. Despite the impact of the epidemic, the Group has maintained decent liquidity without requiring more borrowing and equity financing. The Group has arguably slightly tight liquidity after withstanding one of most disastrous events in the industry. This is because a significant large portion of the Group’s expenses is non-cash, hence the impact on liquidity is less significant than income.
Credit Weaknesses
Profitability under pressure. The COVID-situation has already posed unprecedented challenges to the Group, with additional idiosyncratic risks exerting more pressure on the Group: PP&E more than doubled in FY2019 mainly due to the addition of Daxing international airport, which had significantly increased the Group’s operational fixed cost. Depreciation, for instance, increased to RMB5.3 billion in 2020, representing roughly 37.5% of revenue, and more than 150% increase from 2018’s figure. The increase in PP&E and depreciation will create future maintenance CAPEX pressure while the Group’s liquidity level is now relatively low. In addition, future profits are also under pressure amid uncertainties due to the increased operating leverage and the COVID situation.
Less efficient asset turnover and cost control. Compared to international airport groups, the Group is subject to more political interference, and we observe that Chinese airport groups, regardless of their business focuses on global or domestic markets, are generally less efficient in asset turnovers and operating expense control than their international counterparts in normal business conditions. The Group’s business operations are heavily dictated by the government and its policies, while some of these policies can be beneficial to the Group, it can also limit the Group’s flexibility to take advantage of the booming industry or force the Group to incur inefficient capital expenditures.
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Exhibit 1: Key Credit Metrics
(RMB in millions) 2019A 2020A 2021F 2022F 2023F Financials and Profitability Revenue 24,874 15,903 18,125 23,156 26,260 EBITDA 6,976 -2,339 8 4,126 5,831 EBITDA Margin 28.0% -14.7% 0.0% 17.8% 22.2% Return on assets (ROA) 4.5% -3.7% -3.0% -1.0% -0.2% Return on invested capital (ROIC) 5.6% -6.0% -5.0% -1.6% -0.4% Cash Flow Measures Funds from operations (FFO) 3,012 -5,218 -858 3,165 4,708 Operating cash flows (OCF) 17,898 -2,790 -6,133 1,460 2,979 Free cash flow (FCF) 12,558 -8,864 -12,251 -5,926 -4,492 Discretionary cash flow (DCF) 12,558 -8,864 -12,251 -5,926 -4,492 Capital expenditure 5,341 6,075 6,118 7,386 7,471 Balance Sheet Measures Cash and liquid investments 43,919 37,086 28,051 25,860 23,622 Excess cash 41,667 34,013 25,014 22,654 20,219 Total debt 37,962 40,160 42,570 45,124 47,831 Adjusted debt -3,705 6,147 17,555 22,470 27,612 Total capitalisation 148,765 142,454 138,282 138,077 139,258 Leverage Measures Debt/EBITDA NC NM NM 5.4x 4.7x EBITDA/Interest expense 3.4x NM 0.0x 1.9x 2.5x Gross Debt/Capitalisation 25.5% 28.2% 30.8% 32.7% 34.3% FFO/Debt NC -84.9% -4.9% 14.1% 17.0% OCF/Debt NC -45.4% -34.9% 6.5% 10.8% FCF/Debt NC -144.2% -69.8% -26.4% -16.3% DCF/Debt NC -144.2% -69.8% -26.4% -16.3% Debt/Equity -3.3% 6.0% 18.3% 24.2% 30.2% FFO/Cash interest expense 1.5x -2.5x -0.4x 1.4x 2.0x NC=Net Cash, NM= Not meaningful Sources: Group, Pengyuan International
Business Profiles
Important industry position and location advantage
The Group is the largest airport group in China in terms of assets and passenger traffic, and it is directly affiliated to the Civil Aviation Administration of China (CAAC), which is the aviation authority under the Ministry of Transport of the China. The Group has a total of 54 airports scattered around Beijing, Tianjin, Hebei, Jiangxi, Jilin, Inner Mongolia and Heilongjiang. It has essentially strong control of airports in the northern and north-east region of China.
Exhibit 3: Key Performance Indicators in 2019
250 4,500 1,800 Capital Airport Group 4,000 1,600 Shanghai Airport Group Guangzhou Baiyun 200 3,500 1,400 Chongqing Airport Group 3,000 1,200 Eastern Airport Group 150 2,500 1,000 Zhejiang Airport Group Haihang Airport Group 2,000 800 100 1,500 600 1,000 50 400 500 200
0 0 0 Passenger Traffic, in millions Cargo Volume in thousand tonnes Arrival and Landing, in thousands
Sources: companies, Pengyuan International
In “normal” years, or the pre-pandemic periods, CAH led the industry by almost double the passenger traffic and its revenue was almost 40% higher than the second largest airport group in China: Shanghai Airport Group. In addition, the Group has solid fundamental growth. It has recorded a 2-year CAGR of 6.7% and 13.6% in passenger traffic and cargo volume. In our view, most airport groups were able to generate higher revenue growth than its passenger traffic CAGR in the same period. This is because most airport groups are able to monetise more of their non-aeronautical airport operations. For instance,
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CAH’s ground support, VIP services and licensing fee income experienced strong growth in the 2017-2019 period. Ground support, in particular has almost tripled mostly due to supportive government policies.
Exhibit 4: Operating Scale and Growth of Selected Domestic Airport Peers
30,000 Revenue Revenue 2yr CAGR (FY2017-FY2019) 20% Passenger Traffic 2yr CAGR (FY2017-FY2019) Cargo Volume 2yr CAGR (FY2017-FY2019) 25,000 15%
20,000 10% 15,000 5% 10,000
0% 5,000
0 -5% Capital Airport Shanghai Guangzhou Chongqing Eastern Airport Zhejiang Xinjiang Airport Haihang Airport Airport Group Baiyun Airport Airport
Note: No traffic data available for Xinjiang Airport and Haihang Airport
Sources: Wind, Pengyuan International To sum up, the Group’s operating scale is head and shoulders above the its peers in the China. Judging by the Group’s current scale and historical growth, we believe CAH should maintain its title of largest airport business in China despite the Group’s slightly weakened market share over the last three years. Regardless of the epidemic, China’s air traffic is strongly increasing and it is estimated by the International Air Transport Association (IATA) that China will soon overtake the US as the largest air travel market. The Group has a fundamentally strong and stable business model and it has the advantage of occupying Beijing, which is one of the most important locations, and has control of all the airports in the northern region of China. Strong and diverse operations with high efficiency
In a nutshell, the Group business can be broken down into: 1) Airport operations, which include the provision of aircraft take- off and landing services, passenger services, security services, fire rescue services, advertisements, ground support, equipment or land leasing, catering, energy supply, VIP customer service and others; 2) Construction, engineering services and real estate development which includes engineering site selection, feasibility study, environmental assessment, survey, design, EPC (engineering, procurement and construction) services, project evaluation and commissioning and property management; 3) Hotel operations; and 4) Others, which mostly consist of revenue from the Group’s financial entity. The Group has shown great business developments through its engagement in multiple airport-related operations and its ability to monetise from those operations. This results in aeronautical revenue which accounts for only 26.2% of the Group’s total revenue in FY2019.
Exhibit 5: Segment Revenue Breakdown in FY2019 Exhibit 6: Segment Revenue Breakdown in FY2020
Hotel Hotel Construction Construction and RE Operations, Operations, and RE development, 2,878, 12% 162, 1% Others, 376, 1% development, Others, 1,935, 12% 1,922, 8% 3,075, 19%
Airport Airport operations operations , 19,698, , 10,731, 79% 68%
Sources: Group, Pengyuan International There are 244 airports in China, and CAH has control of 54 of them. Proportionately, the Group has a higher share in the number of airports than the market share of key industry indicators: passenger traffic, cargo volume and aircraft arrival and landing. This is because the Group owns and operates a large number of small airports, which individually account for relatively small market share.
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Likewise, despite owning the highly profiled Beijing Capital Airport, a significant portion of the Group’s revenue generates from small airports, which rely more on domestic traffic, and non-airport operations. Hence, in FY2020, the Group has experienced a decreased of 36.1% in revenue, relatively less than the 66.7% decrease of its listed subsidiary, Beijing Capital Airport, and Shanghai Airport Group which relies more on international traffic.
Exhibit 7: 1-year Revenue Change in FY2020
0%
-10% Japan Airport -20% Chongqing Terminal Airport -30% Haihang Zhejiang Airport -40% Guangzhou Eastern Airport Capital Baiyun Airport -50% Airport Group Aea Sme sa Airports of ADP -60% Fraport Ag Thailand Shanghai Airport Frankfurt -70% Malaysia Airports Holdings
Sources: Group, Pengyuan International Among the four main business segments of the Group, airport operations and hotel operations are heavily impacted by the pandemic, while construction and real estate development, and others have maintained the same level of revenue. These segments that are less sensitive to the aviation industry provide some business and financial diversity to the Group. However, due to the relatively small-scale in operations, these segments do not contribute enough to make the Group profitable. As shown in the waterfall chart below, the Group is already loss-making at the gross profit level in FY2020.
Exhibit 8: 2019 and 2020 Gross profit contribution
Sources: CAH, Pengyuan International
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Exhibit 9: Passenger Traffic Breakdown (FY2019) Exhibit 10: Cargo Delivered Breakdown (FY2019)
Capital Capital Airport; Airport; 45% Daxing 73% Airport; 1%
Hebei Airport Tianjin Airport; Group; 2% 11% Heilongjiang
Hebei Airport Jiangxi Airport Airport Group; Group; 6% Group; 8% 5% Inner Mogolia Airport Group; Jilin Airport Group; 3% 7% Jilin Airport Heilongjiang Inner Mogolia Group; 4% Tianjin Daxing Airport Group; Airport Group; Jiangxi Airport Airport; 8% Airport; 0% 11% 11% Group; 5%
Sources: Group, Pengyuan International Beijing Capital Airport, the busiest airport hub in China and one of the busiest airport hubs in the world, accounts for the Group’s largest share in total cargo and passenger traffic. Beijing Capital Airport was already running at near its capacity in 2012, and hence the new Daxing Airport was designed to release some of the traffic from Beijing Capital Airport. Daxing Airport commenced its operations in September 2019. Daxing Airport had 3 million passenger traffic in 2019 and the number increased to 16 million in 2020. Currently, the airport can handle passenger capacity of 45 million and plans to expand its capacity to 100 million passenger traffic by 2025, which is close to the traffic that Beijing Capital handled in FY2019.
Exhibit 11: Asset Turnover Comparison in FY2019 Japan 0.8x 0.8x Airport 0.7x 0.7x
0.6x 0.6x Signature Guangzhou Aviation 0.5x Baiyun 0.5x Aea Sme sa Airports of 0.4x Shanghai 0.4x Fraport Ag Thailand Airport Eastern ADP Frankfurt Malaysia 0.3x Group Airport 0.3x Airports Capital ZhejiangXinjiang 0.2x Airport Airport Airport 0.2x Chongqing Haihang Airport 0.1x Airport 0.1x
0.0x 0.0x Domestic Airports International Peers
Sources: Group, Pengyuan International
Exhibit 12: Operating Expense (including Cost of Sales) Comparison in FY2019 Haihang Chongqing 140% Airport 140% Airport Xinjiang 120% Airport 120% Signature Capital Guangzhou Zhejiang Japan Aviation 100% Baiyun Eastern Airport 100% Airport Airport Fraport Ag Shanghai Airport Malaysia Frankfurt 80% Airport 80% ADP Airports Group Aea Sme sa Airports of 60% 60% Thailand
40% 40%
20% 20%
0% 0% Domestic Airports International Peers
Sources: Group, Pengyuan International The lower operating efficiency in asset turnover and operating expense could be justified by its higher involvement in real estate development, and the currently underutilised Daxing Airport, which had recently commenced its operations in September 2019. Beijing Capital International Airport Co Ltd, which is the Group’s listed entity, is, however, has higher operating efficiency in its asset turnover and operating expense. As the epidemic situation eases, Daxing International Airport
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and other smaller airports have started to register recovery in their traffic, the Group’s operating efficiency should improve, in our view. The Group’s involvement in real estate development and other businesses could also explain its higher inventory and payable days, in which it has a longer conversion cycle. Regardless, the Group is able to cash in some of its projects in 2020, changing its cash conversion cycle from positive in FY2019.
Exhibit 13: Working Capital Comparison (FY2020)
250 200 Capital Airport Group 150 Shanghai Airport 100 Guangzhou Baiyun 50 Chongqing Airport 0 Cash conversion cycle Eastern Airport -50 -100 Zhejiang Airport -150 Haihang Airport -200
Sources: Wind, Group, Pengyuan International To sum up, the Group involves in a large number of different operations. In addition to the typical aeronautical activities, it also provides strong peripheral/complementary services from licensing, VIP service, asset leasing and real estate, construction, financing and others. Aeronautical revenue accounts for a mere 26.2% of total revenue in FY2019. However, the Group’s financial is still highly vulnerable to its aeronautical operations and we consider the Group is not a highly diversified business for the following reasons: 1) aeronautical operations, other airport operations and hotel operations are highly correlated; 2) construction, real estate development and other segments which seemingly do not correlate with aeronautical revenue, accounted for only 20.8% and 35.5% of the Group’s total revenue in FY2019 and FY2020; 3) a high degree of operating leverage; and 4) an absence of geographical diversity. Financial Profile
Strong cash and short-term investment balance, healthy amount of leverage CAH’s business operations and profitability are subject to the highly uncertain epidemic situation. We observe key industry data: passenger traffic, air cargo delivered, arrival and landing frequency, have all recovered to near pre-pandemic levels at the third quarter of 2020, as shown in the chart below, but have become weak and uncertain again after October due to weak business seasons and increasing COVID cases.
Exhibit 14: Industry Monthly KPI since 2018
1,800
1,500
1,200
900
600 Passenger Traffic, in 100k Cargo Volume in thousand tonnes 300 Arrival and Landing, in thousands
0 Jan-2018 Jul-2018 Jan-2019 Jul-2019 Jan-2020 Jul-2020 Jan-2021
Sources: CAAC, Pengyuan International CAH was showing very strong leverage ratios in 2019; after the construction of Daxing Airport, the Group has decreased its total debt by 11.7% in FY2019, and reported a net cash position. In the first two quarters of 2020, however, the Group’s quarterly revenue decreased dramatically. In the third quarter, the Group’s gross and net income margin were much worse than the pre-pandemic levels due to increased operating leverage, despite slightly higher revenue levels versus 3Q2019.
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Overall, in 2020, the Group reported a devastating profit margin of -50%. In spite of the above factors, the Group did not crush and burn. Instead, CAH is standing strong:
Exhibit 15: Capital Structure, Total Debt and Adjusted Net Debt Progression since 2017 Company's Debt/Capitalization 35% 60,000 Reported Total Debt Adjusted Net Debt 30% 50,000
25% 40,000 20% 30,000
15% 20,000 10% 10,000 5% 0 0% 2017 2018 2019 2020 2021 2022 2023 2017 2018 2019 2020 2021 2022 2023 -10,000
Sources: Wind, Group, Pengyuan International As shown in the chart above, the Group’s debt/capitalisation ratio did not significantly change, and total debt has only increased 5.8% in 2020. Notably, CAH has a D/C ratio slightly higher than the average/median of domestic peers. This is partially due to the Group’s involvement in construction and real estate development. Despite the Group’s moderate level of debt, the Group’s net debt position is very low, and it is near zero in FY2020. This is because the Group has large balance of cash and liquidated investments. In addition, short-term debt amounted to 13 billion and accounted for 33% of total debt in FY2020. This amount is relatively small compared to the Group’s cash balance and short-term investments, as shown in the chart below.
Exhibit 16: No significant change before and after the pandemic
60,000 Reported Total Debt Total Financial Assets Financial Assets/Total Debt200% 180% 50,000 160% 140% 40,000 120% 30,000 100% 80% 20,000 60% 40% 10,000 20% 0 0% 2018 2019 2020 2021 2022 2023
Sources: CAH, Pengyuan International Although the pandemic has introduced a lot of uncertainties and is destructive to the Group’s operations, a large part of the Group’s expense is from depreciation, which does not directly affect the Group’s cash outflow. In addition, CAH was able to make moderate amount of spending on PP&E while it managed to not strongly increase its borrowings and capital structure in FY2020. We believe there will be full of challenges in the near future, but given the Group’s strong cash and financial asset balance and its low debt/capital leverage, the Group is more than capable to meet its obligations and have enough flexibility to re-finance. Liquidity
CAH is relatively cash-rich and has a record of high liquidity. The Group reported RMB43.9 billion and RMB37.0 billion in cash and short-term investments in FY2019 and FY2020 respectively. These figures are significantly higher than the RMB18.1 billion and RMB21.4 billion in financial expense, short-term debt repayment and mandatory capital expenditure reported in the same period. Despite the impact of the epidemic, the Group has maintained decent liquidity without requiring more borrowing/equity financing. Arguably, the Group reported slightly lower liquidity compared to the pre-pandemic periods.
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We acknowledge that the Group has liquidity ratios can be worsen if the epidemic situation persisted. In our forecast, we conservatively assume the travelling situation in China will only slowly improve and the Group will show losses for the next three years. We made the following key projections on CAH’s liquidity:
Estimated cash and liquid assets on hand of RMB28.05 billion and RMB25.86 billion in 2021 and 2022; Estimated FFO of RMB858 million and RMB3.17 billion in 2021 and 2022; Estimated short-term debt payment of RMB12.77 billion and RMB13.54 billion in 2021 and 2022; Estimated cash interest expense of RMB2.15 billion and RMB2.19 billion in 2021 and 2022; Estimated capital expenditure, excluding M&A spending, of RMB6.12 billion and RMB7.39 billion in 2021 and 2022 Very Strong Government Support
Based on our assessment, the Group has strong ties with and is very important to the central government, indicating that the government should have very strong willingness to provide extraordinary support to CAH in the event of financial distress. Unquestionable strong ties with the authoritative figure in China CAH is directly 100% owned by the CAAC. Most airport groups in China are operated and owned by local governments, and Capital Airport Group is the only airport group under CAAC. CAAC is the aviation regulation authority under the Ministry of Transport of the China and it undertakes multiple responsibilities, including but not limited to: developing strategies, regulation policies and standards for the development of the aviation industry; formulation and supervision of pricing policies; proposal of fiscal and taxation policies; supervision of the construction and operation of airports; and investment and management of airport construction projects. As both the regulator and parent of CAH, CAAC is highly influential to the Group’s operations. The Group’s capital expenditure, operation, revenue structure are all influenced by government policies. In addition, the government supports the Group in various ways: 1) specific subsidies that specifically provided to CAH through profit and loss accounts, which was recorded in non-operating income of approximately RMB20 million and RMB7 million in FY2019 and FY2020 respectively; 2) generic subsidies, such as subsidies for small and medium-sized airports, operating subsidies and financial support subsidies, which were classified as other income of approximately RMB222 million and RMB305 million in FY2019 and FY2020 respectively; and 3) grants that recorded in long-term deferred revenue with a total balance of approximately RMB411 million and RMB422 million in FY2019 and FY2020 respectively. In addition, the government has previously provided exceptional support to the Group. For instance, the Group has received capital injections with an amount of RMB2.5 billion in 2016 for the construction of Daxing Airport and an additional of RMB650 million in 2019. The above is just some of cases of the accountable financial support available in the Group’s annual reports. There are a lot more policy, business, management supports from the government that are unaccountable, but have undoubtably helped the development of the Group as well as the industries.
Essential and Irreplaceable To the government, CAH is not just the largest airport business in China. The Group also serves as the developing unit for China’s airport infrastructure. Clearly, CAH represents an image of China, and it also strategically important for the region’s economic development and in some occasions vital for national security. It is in the interest of the central government to continue provide such services within their control. Company Background
Founded in 2002 and headquartered in Beijing, Capital Airports Holding Company, is a government-related entity, subordinated to the Civil Aviation Administration of China. Through its subsidiaries, the Group mainly engages in airport management, airport construction, logistics, real estate, hotel management and financial investment. In terms of the main business development, in 2019, the group's airport passenger throughput, cargo throughput and transport sorties reached 224 million passengers, 2.678 million tonnes and 1.559 million air traffic respectively, with a year-on-year growth of 3.5%, - 2.7% and 0.8% respectively. By the end of 2020, the Group has total assets of RMB197 billion. It manages 54 airports in 7 provinces and autonomous regions, including Beijing, Tianjin, Hebei, Jiangxi, Jilin, Inner Mongolia and Heilongjiang. By passenger traffic, the Group is one of the largest airport management groups in the world. Peer comparison
Fourteen peers were selected in our evaluation of CAH’s operations. Of the total, seven of them are domestic peers, namely Shanghai Airport Group, Guangzhou Baiyun International, Chongqing Airport Group, Eastern Airport Group, Zhejiang Airport
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Group, Xinjiang Airport and Haihang Airport. Beijing Capital International Airport and Shanghai International Airport, which are the Company’s listed subsidiaries, will also be mentioned and compared in this section. In addition, seven international peers – ADP, Aea Sme sa, Fraport Ag Frankfurt, Japan Airport Terminal, Signature Aviation Plc, Airports of Thailand and Malaysia Airports Holdings – are chosen for comparison. Through ownership or licensing, each of the selected peers has significant control in its operating airports. Peers that do not have significant ownership in airports, such as Menzies (John) Plc and SATS Ltd are excluded from the list, as these businesses are subjected to a significant different business risk and tend to have drastic different margins and profitability. Given CAH’s large scale, industry position, overseas traffic exposure, as well as the strong government involvement, we believe Shanghai Airport Group and Guangzhou Baiyun International are more closely comparable to CAH, hence they will be singled out in some sections for better comparison. The following is a short description of the selected Chinese peers:
Shanghai Airport (Group) Company,Ltd. Founded in 1997 and wholly-owned by the Shanghai SASAC, Shanghai Airport (Group) engages in the airport operation business, air transportation auxiliary business, airport supporting service business and other business. Shanghai Airport Group operates two major airports in China – Shanghai Pudong airport and Shanghai Hongqiao airport, which have a combined passenger traffic of 122 million, and handle a total 4.058 million tonnes of cargo and 785,000 air traffic movements. Guangzhou Baiyun International Airport Co. Ltd. Founded in 2000 and effectively controlled by the Guangdong provincial government, Guangzhou Baiyun International Airport is China's third-busiest and world's 11th busiest airport by passenger traffic. In 2019, the company’s passenger traffic reached 66 million, with 1.92 million tonnes of cargo and 491,000 air traffic movements. As of FY2019, 85% of the company’s revenue came from the aeronautical segment. Chongqing Airport Group Co., Ltd. Founded in 2003 and wholly-owned by the Chongqing SASAC, Chongqing Airport Group manages and operates Chongqing Jiangbei International Airport, Qianjiang Airport, Wushan Airport and Wulong Airport. As of FY2019, 52% of the company’s revenue came from the aeronautical segment.
Eastern Airport Group Co Ltd. Founded in 1997 and controlled by the Jiangsu provincial government, Eastern airports was formally known as Nanjing Lukou International Airport Company Limited and was reformed in 2018 after acquiring a majority interest in six nearby airports: Xuzhou, Changzhou, Huai'an, Yancheng, Yangtai and Lianyungang. In 2019, the company’s passenger traffic reached 31 million, with 375,000 tonnes of cargo and 233,000 air traffic movements. As of FY2019, 46% of the company’s revenue came from the aeronautical segment. Zhejiang Airport Group Co., Ltd. Founded in 2013 and controlled by the Zhejiang provincial government, the company has undergone a major reform in 2017 after acquiring the majority interest in several other airports. Zhejiang Airport Group currently operates and manages Hangzhou Airport, Ningbo Airport, Wenzhou Airport, Yiniao Airport, Danshan Airport, Taizhou Airport and Quzhou Airport. In 2019, the company’s passenger traffic reached 70 million, with 900,000 tonnes of cargo and 526,000 air traffic movements. As of FY2019, 54% of the company’s revenue came from the aeronautical segments. Xinjiang Airport Group Co Ltd. Founded in 2004 and controlled by the Xinjiang government, Xinjiang Airport Group operates a lot of airports in China, including Urumqi, Kashgar, Yining, Korla, Altay, Aksu, Hetian, Tacheng, Kuqa, Qiemo, Karamay, Nalati, Kanas, Hami, Turpan and Bole. HNA Airport Group Co Ltd Founded in 2006, HNA Airport Group mainly operates nine airports, including: Sanya Phoenix, Yichang Three Gorges, Weifang Nanyuan, Manzhouli Xijiao, Anqing Tianzhushan, Tangshan Sannuhe, Yingkou Lanqi, Sansha Yongxing Island and Songyuan Chaganhu. In 2019, the company’s passengers’ traffic reached 26 million, with 123,000 tonnes of cargo and 178,000 air traffic movements.
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Exhibit 17: Peer comparison table (ratios as of FY2020)
(RMB mn) Shanghai Eastern Zhejiang Haihang Guangzhou Chongqing CAH Airport Airport Airport Airport Baiyun Airport Group Group Group Group Group Financials Revenue 15,903 4,303 5,225 2,515 1,942 4,059 1,380 Revenue 1yr change (FY19-FY20) -36.1% -60.7% -33.6% -14.4% -34.4% -30.5% -23.7% Revenue 3yr CAGR (FY17-FY20) -8.7% -18.9% -8.2% 1.3% -4.3% -4.2% -6.7% EBITDA -2,339 -1,718 819 180 -428 -249 407 EBITDA margin -14.7% -39.9% 15.7% 7.2% -22.0% -6.1% 29.5% Return on assets (ROA) -3.7% -4.7% -0.9% -2.9% -1.0% -0.9% -17.7% Return on invested capital (ROIC) -6.0% -6.4% -1.3% 547.7% -7.2% -4.8% 47.4%
Cash Flow Measures Funds from operations (FFO) (5,218) (1,094) 864 (441) (526) (608) (1,065) Operating cash flows (OCF) (2,790) (1,218) (35) 187 345 (684) 156 Free cash flow (FCF) (8,864) (2,543) (1,396) (2,757) (941) (5,375) (177) Discretionary cash flow (DCF) (8,864) (2,743) (1,398) (2,757) (941) (5,375) (177) Capital expenditure 6,075 1,325 1,361 2,945 1,286 4,691 333
Balance Sheet Measures Cash and short-term investments 37,086 7,656 2,325 3,130 4,141 2,244 620 Total debt 40,160 0 20 18,366 5,848 18,906 14,836 Adjusted net debt 1,379 (7,656) (2,305) 15,236 1,707 16,662 14,217 Equity 102,294 29,559 19,463 13,107 20,668 24,552 (2,627) Total capitalisation 142,454 21,903 17,158 28,342 22,376 41,214 11,589
Leverage Measures Debt/EBITDA -0.6x NM NM 84.6x 7.0x 7.0x 34.9x EBITDA interest coverage -1.1x NM 52.8x 0.2x -2.2x -0.3x 0.2x Gross Debt/ Total Capitalisation 28.2% 0.0% 0.1% 58.4% 22.1% 43.5% 121.5% Debt/Equity 39.3% 0.0% 0.1% 140.1% 28.3% 77.0% -564.7% FFO/Debt -378.4% NM NM 1.2% 20.2% -4.1% 1.1% OCF/Debt -202.3% NM NM 0.8% 0.0% -2.3% 11.9% FCF/Debt -642.8% NM NM 0.8% 0.0% -2.4% 13.3% DCF/Debt -642.8% NM NM 0.0% 0.0% 0.0% 0.0%
Operating Efficiency Receivable days 93.3 140.4 72.6 44.3 89.1 71.1 92.9 Inventory days 166.4 0.9 4.4 269.3 142.2 0.5 172.0 Payable days 293.7 28.4 39.6 391.5 9.3 223.7 418.0 Cash conversion cycle -34.0 112.8 37.5 -77.9 222.0 -152.1 -153.0 Asset Turnover 0.08x 0.12x 0.20x 0.07x 0.07x 0.08x 0.05x Cost of sales margin 117.1% 153.4% 101.2% 125.8% 127.0% 111.4% 62.7% SG&A margin 27.4% 6.2% 10.1% 9.7% 15.2% 13.2% 23.3% Operating expense margin 31.2% 6.3% 12.4% 18.0% 16.1% 14.1% 25.0% non-operating expense/(income) margin -2.1% -21.1% -9.0% -0.5% -29.0% -14.3% 376.0%
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Rating Scores Summary
Business Profile Moderate Industry and Operation Risk Profile Moderate Macroenvironment Risk Low
Financial Profile b Preliminary Leverage Profile b+ Cash Flow Variations Neutral Debt Structure and Financial Policy Neutral Financial Volatility Neutral Investments 0 notch Final Leverage Profile b+ Profitability Weak
Indicative Credit Score (ICS) bb-
Adjustment Factors Corporate Structure and Governance Neutral Liquidity Moderate Supplementary Analysis Neutral
Standalone Credit Profile (SACP) bb-
External Support Parental Support N/A Government Support Very Strong Issuer Credit Rating (ICR) A-
Note: ratings mentioned in this report are unsolicited rating.
Related Criteria
General Corporate Rating Criteria (15 March 2018)
Financial Adjustments and Ratio Definitions (07 May 2018)
Government-Related Entities Rating Criteria (31 Aug 2018)
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Corporate China
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