Morningstar | Lowering FVE for Local Shares but Maintaining for ADRs Following Pacifico's Investor Day. See Updated Analyst Note from 21 Mar 2019
We are maintaining our fair value estimate for ADRs at $109 but lowering our fair value estimate for local shares to MXN 206 from MXN 210 following Grupo Aeroportuario del Pacifico’s 2019 investor day and after the peso rallied against the dollar (MXN 19.20 to 18.90) following our last update. After taking in management’s latest 2019 guidance and observing early passenger traffic results, we raised annual traffic growth in our model above 6.5%, from slightly below 6%, and concurrently lowered Pacifico’s aeronautical revenue per passenger to MXN 226 from MXN 233. We do project higher non-aeronautical revenue per passenger growth against 2018 (9% versus 8% previously) but it fails to offset lower aeronautical revenue, hence our lower fair value estimate. 2019 consolidated revenue growth near 14.5% is less than the 16% we previously modeled due to commercial revenue (excluding recovery of costs) at MXN 3.5 billion. Management guided for 2019 commercial revenue of MXN 3.55 billion. Both ADRs and local shares remain in 4-star territory subsequent to our model updates.We flattened aeronautical revenue per passenger growth for the year across all Pacifico airports on management’s guided MXN 223 per passenger. However, we raised Tijuana’s international traffic growth to 19% from 12% on strong early 2019 results that suggests the cross-border express will build on robust 2018 results. We also raised non-aeronautical revenue growth by 200 basis points for Tijuana and Los Cabos to 8% on substantial expansion and redesign to commercial spaces.
In the final year of its current tariff, Pacifico plans to finish several projects at airports including Guadalajara, Tijuana, Los Cabos, La Paz, and Aguascalientes. Much of its planned investment is pegged for terminal buildings and airways. Turning to new Mexican tariffs beginning in 2020, management plans to dedicate almost two thirds of its allotted spend on terminal building upgrades, equipment renovation, and airfields.
About nine months away from the Jan. 1, 2020, new tariff start date, Pacifico is beginning to integrate recommendations from Mexico’s Operations and Schedules Committee into its proposed master development plan. Management expects MXN 20 billion for capital expenditures under the new tariff on 4% to 5% traffic growth between 2020 and 2024. Pacifico is also negotiating new tariffs for Montego Bay and Kingston with start dates set for 2020. Fewer specifics are available for negotiated Jamaican tariffs. We plan to update our model as more details become available closer to 2020 for tariffs in Mexico and Jamaica.
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