EUR 850.00 For Business Accounts Only

Morningstar | ASUR B Updated Forecasts and Estimates from 24 Jul 2018

In its second quarter, wide-moat Grupo Aeroportuario del Sureste generated 5% higher passenger traffic from its Mexican operations compared with last year, but passenger traffic slipped in Puerto Rico and Colombia by 6% and 4%, respectively. Total revenue climbed 32% mostly due to an accounting change for Puerto Rico operations, which are now fully consolidated into results. Nonaeronautical revenue in Mexico rose 15.2%, benefitting from 15.6% higher commercial revenue. Although the aftermath of Hurricane Maria still weighs on Puerto Rico’s traffic, we expect year-over-year traffic headwinds to taper off by the first half of 2019. After a post-earnings rally, the shares look fairly valued at our $194 and MXN 367 fair value estimate.

Sureste generated 1% passenger growth over last year, which puts it on pace to meet the 48 million-passenger traffic target we forecast for 2018. Cancun domestic traffic was a tailwind, growing at 9%, and the operator’s remaining Mexican airports expanded domestic passenger traffic 6% collectively. We forecast Puerto Rico passenger traffic to be down 3% for the year but improve 5% and 9% in 2019 and 2020, respectively. Declining passenger traffic in Colombia this quarter corresponds with the 3% slide we forecast for 2018, but we’re encouraged by nonaeronautical revenue growth, and we expect 60% operating margins for Colombia this year.

Excluding construction costs, adjusted EBITDA margins slipped about 720 basis points, but Sureste’s Aerostar (Puerto Rico) consolidation underpins most of the year-over-year decline. Airport expenses across the company’s Mexican operations grew 18% (excluding construction) on the back of higher professional fees, higher cost of sales from store openings in Cancun’s Terminal 4, and security and maintenance expenses. Operating margins won’t return to the all-time highs achieved in 2016, but we anticipate margins will expand to 60% by 2022, up from our forecast of 58% this year.

While we are encouraged by the approval of Sureste’s master development program, the company's regulated business only accounts for roughly 40% of our fair value estimate and we believe that core airport operations remain a cost of capital business. Thanks to Cancun and the large contingent of tourists choosing to shop at its airport, Sureste has the highest percentage of nonaeronautical revenue--which remains unregulated under the dual-till system governing Sureste’s business--of the Mexican airport operators we cover. On the unregulated side of the business, Sureste enjoys significant pricing power, and we believe it can take up to 35% of tenant revenue at a highly trafficked airport like Cancun.