Morningstar | In Fresh Look at BCIA, Downgrading to No Moat, Raising Uncertainty to High, Maintaining HKD 4 FVE
After transferring coverage of Beijing Capital International Airport, we are downgrading our economic moat rating to none from narrow while maintaining a stable moat trend rating. We are keeping our fair value estimate at HKD 4 but raising our uncertainty rating to high and lowering our stewardship rating to Poor. We think the company’s shares are currently overvalued.In our view, despite the airport’s current monopolistic presence in the Chinese capital, tight regulations coupled with the opening of a second airport will weigh on the firm’s profitability, making us less confident in its ability to generate excess returns on invested capital over the next 10 years. As the city’s second airport, Beijing Daxing International Airport, starts its operations in late 2019, the number of passengers traveling through BCIA will decline materially. We anticipate the opening of the second airport to bring a 21% drop in BCIA’s aeronautical revenue from 2019 to 2021. Our forecast has taken into consideration BCIA management's expectation that the contribution from higher-revenue international routes will increase after the completion of traffic relocation. We expect stabilization in 2022 as the mandated traffic relocation is completed.
We forecast the firm’s nonaeronautical revenue to dip 19% from 2019 to 2021 as a result of the decline in passenger volume and the expected 2020 opening of a competing duty-free mall located right next to Beijing Capital International Airport. With BCIA set to face cannibalization from the new airport, its high operating leverage magnifies the impact of top-line swings on profit.
The firm also carries numerous connected transactions with its parent, Capital Airport Holding. As of 2017, these transactions amounted to almost 50% of the firm’s operating expenses, a level that far exceeds those of peers. We suspect BCIA is overpaying for some of the services provided by its parent, leading to our Poor stewardship rating for the firm.
Beijing Capital International Airport is engaged in the ownership, operation and management of aeronautical and non-aeronautical businesses at the international airport in Beijing, the People's Republic of China. Co.'s aeronautical business operations include aircraft landings and take-off services and passenger service facilities, ground support services and fire-fighting services for domestic and foreign airlines. Co.'s non-aeronautical business consists of the business franchising of: ground handling agent services; in-flight catering services; duty free and other retail shops in the terminals; restaurant and other food and beverage businesses, and leasing of advertising spaces.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.