Source: China Daily HK Edition Author: Cho Fook Tat 08/08/2008
Subject Concerned: Opinion Airport
Hainan Meilan International Airport
Although the general de-rating of mainland airport stocks led to the trimming of our target price on Hainan Meilan International Airport (HMIA) from HK$15 to HK$12.70, which represents a forward PE of 26 times and PB of 3.2 times, we maintain our "buy" call on the counter, in view of its solid profit growth potential and the speculative appeal of its possible acquisition of Sanya Phoenix International Airport (SPIA).
The tax authority has deferred HMIA's tax-free period from 2000-2004 to 2004-2008, and accordingly a postponement of the subsequent 5-year 50 percent reduction of profit tax from 2005-2009 to 2009-2013.
Although HMIA suffered a quadruple increase in its FY07 profit tax expense to 40 million yuan, as it needs to settle the tax underpayment for previous years, the change in tax arrangement allows the company to enjoy a lower tax rate of 0 percent, 10 percent, 11 percent, 12 percent, 12.5 percent and 12.5 percent during FY08-13.
The growth of passenger throughput, commercial flight and cargo volume handled at Haikou Meilan International Airport further accelerated to 23 percent, 17 percent and 23 percent to 4.41 million, 33,700 movements and 74,000 tons in the first quarter of this year, compared with respective growth rates of 9 percent, 5 percent and 14 percent in FY07.
The exemption of profit tax would also act as an additional earnings growth driver for FY08, where we estimate a 48 percent jump in HMIA's bottomline to 206 million yuan (EPS: 0.44 yuan).
* An affiliated company(ies) of Taifook Research Limited make(s) a market in the securities herein covered and/or any warrants or options on these securities herein covered.
* The author is an analyst with Taifook Securities.