Shareholders reduced their holdings, investment banks lowered their target prices, lost more than 9 billion yuan in four years, and the market capitalization shrunk by more than 80%, and the Beijing Capital Airport (00694) is facing multiple difficulties.

The Zhitong Finance App learned that Beijing Capital Airport recently announced a net loss of 16.5-1.75 billion yuan for the year, which is expected to achieve a net loss of 16.5-1.75 billion yuan for the whole year. Compared with the loss of 3.53 billion yuan in the same period last year, the company has been losing money for four years, with a cumulative loss of more than 9.3 billion yuan. However, due to the liberalization of epidemic prevention in 2023, airport traffic has recovered significantly, and the company's annual revenue is expected to increase by more than 80%.

Despite business recovery, due to losses, the company is still not favored by investment banks and markets. For example, BlackRock's holdings were reduced twice in January and continued to be reduced by Mitsubishi UFJ Financial Group, Inc. in February. In fact, starting in 2018, the company's market capitalization continued to rise. The stock price fell from HK$12.64 to HK$2.57, a drop of 80%, which is 17 percentage points higher than the decline in the aviation sector.

It is worth noting that in 2024, the market will warm up, and major sectors will rebound one after another. Under a relaxed and profitable investment environment, does Beijing Capital Airport still have a chance?

Performance has recovered less than 50%, and the pressure to repay short-term debts is high

The Zhitong Finance App learned that in the three years of the epidemic, airport traffic changed irregularly, mainly due to the strictest travel restrictions in the first year, green code clearance in the second year, and a sharp increase in travel volume. The third year was strict again, causing airport traffic to be moderately high and low on both sides, which is also reflected in aviation performance. Beijing Capital Airport mainly operates aviation and non-aviation businesses. Business revenue fluctuations and airport traffic are clearly linear.

However, with the liberalization of epidemic prevention in 2023, suppressed travel demand was released, including travel and family visits, airport traffic increased dramatically, and aviation industry performance also rebounded sharply. The company's revenue increased by 80.2% in the first half of the year, of which aviation business revenue surged 161%. The number of domestic flights taking off and landing doubled in the first half of the year, passenger throughput more than tripled, and international passengers doubled 20 times. The popularity of travel in the second half of the year did not decrease, and the annual travel traffic is expected to be no weaker than in the first half of the year.

However, compared to before the pandemic (same period in 2019), the company's aviation business and non-aviation business only recovered by 44.74% and 32.13%, respectively.

In terms of specific business, aviation business accounted for 45.84% of revenue, including aircraft take-off and landing and other operations (accounting for 25.94% of revenue) recovering 49.5%; travel service business (19.92%) recovering 39.8%; non-aviation business accounting for 54.16% of revenue, mainly including franchise revenue (30.08%) recovering only 23%, and rental revenue (20.88%) recovering 63.09%.

Compared to peers, Beijing Capital Airport's performance recovery is at a lower average level, and the company's impressive airport traffic performance in 2023 may be due to a lower base. It is also important to note that the company's performance is recovering slowly. Due to huge fixed expenses, losses have been lost year after year, while the performance of major airlines such as Air China, Cathay Pacific, and China Southern has basically recovered, and has basically turned losses into profits.

The three core fixed bookkeeping expenses of aviation are mainly depreciation and amortization, aviation safety and protection, and repair and maintenance. If business assets do not change, these three expenses have been relatively stable over the years. Among them, depreciation and amortization are $1-1.5 billion, aviation safety and protection is $8-10 billion, and aviation safety and protection is $9-10 billion. In the first three quarters of 2023, the company's revenue was only 3.27 billion yuan, which is still insufficient to cover the three fees. It is expected to exceed the three fees for the whole year, but other expenses are also high, resulting in a net loss of no less than 1.65 billion yuan.

In addition, the company also has major financial problems: the share of interest-bearing debt is high and the pressure on short-term debt is high. As of September 2023, the company had short-term loans of 6.564 billion yuan, long-term loans of 1,997 billion yuan, and also 1.5 billion yuan of payable bonds, totaling 10.61 billion yuan, accounting for 57.5% of the debt. The company's monetary cash account was only $1,317 million, and the total amount of notes receivables/accounts and transactional financial assets was only $2,733 billion.

The industry is recovering and entering a growth channel, yet the company's situation is worrying

Although Beijing Capital Airport's performance and finance are unsatisfactory, from an industry perspective, the overall trend in the aviation industry is positive. Judging from the data for the five years before the epidemic (2015-2019), the number of passengers transported continued to grow, with a compound growth rate of 10.9%. After the outbreak began, it began to recover in 2021. China's civil aviation passenger traffic in 2023 was 620 million, a compound increase of 14.04% in 2020-2023, surpassing 2018, and recovering to 93.9% in the same period in 2019. It is expected that 2024 will surpass 2019 and restart the double-digit growth channel.

Industry leaders and larger airlines have basically recovered in performance. For example, Air China and China Southern Airlines, revenue for the first three quarters of 2023 increased by 150.6% and 70.31% respectively, up 2.33% and 2.42% respectively from before the pandemic. Cathay Pacific released its 2023 annual report, with revenue growth of 85.13%, and performance recovery is consistent with the industry. It can be seen that the epidemic has intensified the division of the industry, and the situation of small airlines is worrying.

The difficulties faced by Beijing Capital Airport are still quite obvious. First, the recovery in performance is far below the industry level, lagging behind peers, and secondly, short-term debt repayment pressure issues. In 2023, 1.5 billion yuan of bonds were added, and long-term debt pressure was also increased. In the short to medium term, the company may be busy with financing and debt management. The business may continue to lag behind its peers, and may not have more capital to repurchase shares and dividends, increasing the level of shareholder returns.

According to information, the company's most recent dividend payment was in 2019, which is basically consistent with the same industry, but as other companies' profits and market value management concepts improve, stable dividend expectations are even stronger, and if the company fails to achieve profits, plus financial pressure, it cannot see dividend payout expectations in the short to medium term. Because of this, the market gave the company a relatively low asset valuation, with a PB of 0.7 times, far lower than China Southern, Air China, and Cathay Pacific.

Overall, under the three-year epidemic reshuffle, the market has outlived the fittest. As a small-sized airline, Beijing Capital Airport is facing multiple difficulties such as business failure, industry and financial pressure, which are difficult to solve in the short to medium term. This will suppress its valuation performance, compounding the lack of optimism among shareholders and investment banks. Even if the market warms up, the company may continue to bottom out.