Auckland International Airport Limited

Announced March 2019 Monthly Traffic Update: Auckland International Airport Limited (ASX: AIA) is engaged into airport operations with a market capitalisation of ~A$9.87Bn as on 24^th May 2019.  Recently, by release, the company updated the market about monthly traffic. AIA total passenger numbers in March 2019 were almost in line with the last year. The company witnessed a down of 0.7% in international passengers excluding transits, whereas domestic passengers’ number has increased by 1.1% in comparison to March 2018.

The company further stated that international passengers’ growth has been affected by the shift in the timing of Chinese New Year to early Feb 2019 and the Easter and school holiday period from late March in 2018 to mid-April 2019. This had resulted in Australian and Chinese visitor arrivals for March were down by 11.6% and 9.0%, respectively in comparison to the prior year. Domestic passenger growth has been mainly driven by additional capacity. The total passengers which include international, domestic and transit movements stood at 1,869,312 in March 2019 as compared to 1,868,417 in March 2018.  

On 6^th May 2019, the company, via its release, announced the appointment of Jonathan Good on the role of General Manager Technology & Marketing. Jonathan would be responsible for the strategy and execution of world class technology and marketing programs to improve the customer experience and ensure an operational experience to meet AIA’s current and future growth requirements.

A Look at Financial Summary of 1HFY19:  The underlying profit had increased by 2.9% to $136.9Mn in 1HFY19. The revenues number has increased by 11.5% and stood at $370.6Mn in 1HFY19. The aeronautical revenue reported a rise of 5.8% and stood at $157.6 Mn in1HFY19, which is driven by growing passenger volumes and runway movements. The retail income witnessed a rise which reflects the full six-month effect from expanded Duty-Free area as well as the launch of the luxury high street product during the period.

1HFY19 Financial Summary (Source: Company Reports)
 
What to Expect From AIA: The company has agreed pathway with ACE forum to increase air traffic movements to 47 per hour by 1HFY20 and 50 per hour by FY22. The company had doubled the number kiosks at the international terminal and added more airlines to the service.
 
It had rolled out 4000 new braked baggage trolleys. Additionally, the company had added improved wayfinding in the international arrivals. The company is planning to undertake a check-in-to-gate biometrics trial over the next six months. Adding to that, it is also planning to improve the international transit experience.
 
Stock Recommendation: The company is planning to enhance international passenger screening and plans to develop a dedicated One World Alliance check-in area. With respect to stock’s performance, it had delivered a return of 9.10%, 13.35% and 22.56% in the span of one-month, three months and six months, respectively. Also, as per ASX, the company’s stock price is trading closer to its 52-week high price of $8.220. We presume that the positive developments have already been discounted in the price at the current juncture.  Therefore, we recommend an “Expensive” rating on the stock at the current market price of $8.100 (down 0.613% on 24 May 2019) and expect a further correction in the near term.
 

Sydney Airport

 
SAT1 Indemnity Related to Historical Investment: Sydney Airport (ASX: SYD) is into the airport operations with a market capitalisation of A$16.95 Bn as of 24 May 2019. The company, by release, updated the market on decisions of the Court of Justice of the European Union. As per the release, dated 24^th May 2019, after finalization and release of SYD’s 31^st Dec 2018 financial reports had prompted reconsideration of the status of indemnities, which is provided by Sydney Airport Trust 1 in relation to 2011 sale of Copenhagen Airport.
 
The ECJ decisions were not related to the two tax disputes, which has been covered by the SAT1 indemnities. However, SAT1 had assessed that some or all of the $119.1 Mn non-current receivable in the 31^st Dec 2018 Financial Report relating to indemnity previously paid may need to be expensed,and a future call on its indemnities is possible, up to a maximum of $61 Mn as at 30 June 2019.
 
Additionally, SYD confirms that the indemnities, even if expensed and/or fully called would have no material impact on the company’s net operating receipts in 2019 or later years. Adding to that, it would also not impact SYD’s distribution guidance of 39c per stapled security for 2019.
 
Improved Revenue in Business Segments: The aeronautical and retail business segments’ revenue has increased by 7.6% and 7.2% from FY2017 to $721.7Mn and $357.0Mn, respectively.Whereas Property and Parking & Ground transport businesses witnessed a rise of 7.5% and 1.7% in revenues in comparison to FY17 and stood at $238.1Mn and 162.1Mn, respectively.
 

Total Revenue (Source: Company Reports)
 
Future Guidance: The company further stated that it is in a strong position to grow in FY19. SYD is expecting three-year capex in the range of $0.9-$1.1Bn for 2019-2021. Additionally, the company has anticipated the capital expenditure in the range of $390-440Mn for FY2019.
 
The company is delivering operational excellence by innovative solutions and supporting customer needs now and in the future.
 
Stock Recommendation: When it comes to financial metrics and valuation, the company had witnessed satisfying numbers. The current ratio stood at 1.40x in FY18 as compared to the industry median of 1.25x, which reflects that the company is in a decent position to address it short-term obligations. The return on equity stood at 103.3% in comparison to the industry median of 12.1%, depicting that the company is generating a substantial return to its shareholders in comparison to the broader industry. With respect to stock’s performance, it had witnessed return of 5.92% and 12.09% in the span of three months and six months, respectively. As per ASX, the stock is trading towards 52 weeks higher levels of $7.900. Hence, considering the aforesaid facts and current trading level, we give an “Expensive” recommendation on the stock at the current market price of A$7.610 per share (up 1.332% on 24th May 2019).

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