Citics Research Ideas: Shanghai Airport (600009) Monthly Tracker, October 200

Shanghai Airport (600009) Monthly Tracker, October 2008:  Business picks back up after bottoming-out---Ma Xiaoli--- "Buy" (reiterate)

Shanghai Airport's passenger handling capacity has increased YoY, up 18.9% MoM, domestic airlines are improving.  The upward movement in October's data is due to several factors: 1) The beginning of the month was one of China's Golden Week holidays; 2) Olympics and Paralympics have ended, artificial/external factors have gradually disappeared.  However, airport security is still relatively strict, and restrictions on international visas have not been completely loosened, the potential for the aviation market has not been completely realized, especially for international routes.

Pudong Airport (Shanghai Airport 600009): Growth of passenger rates were dragged down by international routes; unfavorable composition of flight schedules. 1) Volume of domestic passengers exploded, alleviating the slide in international passenger volume; carriers were on up MoM on average. 2) Airplane takeoff/landing rates improved, but composition continues to be unfavorable. International and regional flights account for 52.9% of flights in October, down from its peak of 64.2% (in 2007 it was 59.9%), flights of international carriers fell from it's peak of 34.2% to 30.1%, since the fees from international carriers is the highest, domestic international flights are the second highest, and domestic flights are the lowest, it is easy to see that the recent composition of flights does not have a beneficial effect on the Company's earnings.

Earnings will bottom-out in 2008, Company has considerable room to grow. In 2009, the Company's business volume will hopefully rapidly pick back up from its low base level in 2008. In 2010, Shanghai will host the World's Expo (estimated to attract 70 million visitors). In the long-term, the Company can look forward to a new Disneyland theme park.  We feel that the Company has great future prospects and in a great position for future growth.  Market has been watching significant asset restructuring, but has yet to see any clear signs of progress, we estimate that restructuring will most likely conclude sometime in 2009.

Risk Factors:  Business volume is lower than expected; uncertainty of Company's asset restructuring; unexpected factors, etc.

Readjusted assumed future growth and earnings forecast: In 09, the rate of growth for total passenger handling capacity will fall from 12% to 8%, assuming that Hongqiao Airport does not grow, then the growth rate for passenger handling capacity for Pudong Airport will be 14.4% (originally 21%),  and we assume that international passengers will increase 5% (originally 12%). Based on these new assumptions, our earnings forecast for the Company is 08/09/10 EPS is RMB 0.48/0.57/0.73, an annual average growth of 23.7% (not considering major asset restructuring). Render a 20x 09E PE valuation, and considering the expected restructuring of major assets, we give the Company a 15% premium, with a target price of RMB 13.1 and a rating of "Buy").