CICC: Maintains "outperform" rating on BEIJING AIRPORT (00694) with a target price of 2.9 Hong Kong dollars.

CICC released a research report stating that it maintains a "outperform" rating on BEIJING AIRPORT (00694) with a target price of 2.9 Hong Kong dollars unchanged (the target valuation year has been switched to 2025, and based on 0.9 times 2025 P/B, slightly higher than the original 0.8 times target P/B, mainly considering the resilience of passenger volume growth in the travel sector and gradual improvement in duty-free consumption at ports, with the bank expecting market risk appetite to improve). The bank adjusted the company's profit forecast for 2024 and 2025 to -1.517 billion yuan and 0.17 billion yuan. The bank introduced a profit forecast of 0.413 billion yuan for 2026, mainly assuming an 8% year-on-year growth in the company's passenger throughput in 2026 and operating costs to remain in low single-digit growth. Key points from CICC are as follows: Forecast for a significant narrowing of pre-tax loss in 2024 BEIJING AIRPORT recently released a performance forecast, with the company initially estimating a pre-tax loss of 6-7 billion yuan in 2024, compared to a pre-tax loss of 17.2 billion yuan in 2023; and a net loss of 13.5-16.5 billion yuan in 2024, compared to a net loss of 17 billion yuan in 2023. According to the performance forecast explanation, the significant difference between pre-tax loss and net loss in 2024 is mainly due to the recognition of deferred tax assets for deductible losses generated in previous years, which the company believes it will not have sufficient taxable income to offset before the expiration, leading to a substantial increase in income tax expenses in 2024. Steady recovery in business volume, gradual improvement in profit. In 2024, the company had accumulated 434,000 aircraft movements, a year-on-year increase of 14.2%; passenger throughput of 67.37 million, a year-on-year increase of 27.4%; and cargo and mail throughput of 1.44 million tons, a year-on-year increase of 29.3%. The company's business volume continues to recover, with relatively low growth in operating costs, coupled with optimization of commission rates in advertising and international retail businesses, demonstrating gradual operational leverage. The company plans to offset accumulated losses with retained earnings, which the bank believes may help implement profit distribution policies in the future. According to the company's same-day announcement of the "Loss Offset Plan Proposal," the board of directors proposes to utilize 2.991 billion yuan from any retained earnings in full to offset the cumulative losses as of December 31, 2023, in accordance with relevant regulations of Chinese company law and the company's articles of association. The loss offset plan must be approved by the shareholders' meeting in accordance with the company's articles of association before implementation. Risks: International passenger recovery lower than expected; continuous weakness in duty-free consumption; capital expenditure amount exceeding expectations.