Meilan Airport prospects flat

PUBLISHED : Tuesday, 26 August, 2003, 12:00am
UPDATED : Tuesday, 26 August, 2003, 12:00am

Despite the change in status, analysts doubt the island's ability to lure long-haul travellers

Investors have been dipping their toes into the warm tropical waters of Hainan Island this month following the mainland government's decision to grant its airports international status.

Foreign airlines now have freedom of access to the airports of Haikou and Sanya under an 'open skies' regime, with unlimited rights to fly people and cargo to and from Hainan and the ability to fly beyond the island to third countries.

In addition, the central government plans to transform Hainan into a special tourism zone, introducing visa-free access to help the island compete with Bali and Phuket.

The expected rush of travel to the island has pushed the share price of Hainan Meilan Airport up almost 20 per cent since the start of the month before retreating 0.5 per cent yesterday to close at $4.90.

However, Hainan - long a sleepy Chinese backwater - has a fair way to go before it can match the tourism facilities of its Asian competitors.

'There's not an awful lot there,' said an analyst at a leading European brokerage.

Hainan's chief attractions include its many wide sandy beaches, some mid-standard hotels and a few good golf courses. However, its location on the southeast tip of the mainland makes it a less than obvious stop-off point to other Asian hot spots. As such, the analyst expressed serious doubts as to whether Meilan Airport can ever achieve hub and spoke status.

ING aviation analyst Philip Wickham said Hainan was not an ideal place for fifth freedom traffic to move on from as it did not make much sense for flights to overshoot towards the island before flying on down to Southeast Asia, and onward flights were more likely to move on to north Asia. 'It's more of an end destination,' he said.

International travellers make up about 15 per cent of visitors to Hainan who arrive by air, so even rapid growth in the short term would have only a marginal impact in earnings.

But international traffic is more lucrative than domestic. Meilan Airport estimates that it collects three times the airport fees per passenger from international arrivals who also tend to spend more at the airport's retail outlets.

But it is nonetheless going to be a long time before international traffic has any meaningful effect on the company's bottom line.

Domestic tourists from major cities such as Beijing and Shanghai make up the vast majority of visitors to Hainan, but that, according to HSBC analyst Mark Webb, is the key to Meilan Airport's long-term growth.

'International status brought attention to a cheap, slightly overlooked stock,' he said.

The strong demand for beach holidays by China's huge emerging middle class would send visitor arrivals to the island soaring, he said. Last year, the airport's throughput was 5.6 million. This would increase by 50 per cent in the next five years and would more than double in 10 years, Mr Webb said.

This year's figures are skewed because of Sars, but passenger volumes have gone through the roof since the outbreak was contained.

Meilan Airport saw a 21 per cent year-on-year jump last month, and the management expects this month's figures to have risen by more than 30 per cent.

Most analysts see the stock as a long-term bet, and expect the recent rise will yield limited upside. Mr Webb has set a target price of $5, and after this month's rally downgraded the stock from 'buy' to 'add'.

According to figures compiled by Bloomberg, Meilan Airport is trading on 15.11 times forecast earnings.