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The company diversifies its revenue streams as it faces increased competition

Shenzhen Airport is to become the second-largest shareholder in China's biggest funds house as the cash-rich company tries to improve its return on capital invested and further diversify its income.

The airport operator was given the approval by the China Securities Regulatory Commission on Tuesday to acquire 30 per cent of China Southern Fund Management for 151.5 million yuan (HK$141.95 million).

An executive from the airport management company said it intended to make  financial investment its No 2 revenue earner.

'The financial sector has good prospects. It's a good segment for us to diversify into from the airport operations,' said an executive from the airport.

The airport company, which has traditionally faced regional competition in the Pearl River Delta - a condition which will intensify next year when Gangzhou's Baiyun International airport opens - has always diversified its revenue base.

The Shenzhen A-share listed firm owns interests in several local securities houses, including 20 per cent of Guosen Securities.

Michael Chan, the head of research, transport and logistics at Bank of China International, said the airport generated a growing proportion of its income from investments. Its income contribution from investment earnings in the first half grew one percentage point year on year to 15 per cent.

Its interim profits from operations were 175.6 million yuan, of which 26.88 million came from investment, according to the Shenzhen stock exchange and based on mainland accounting rules.

'It has a lot of cash and it's wise to generate some income through investment,' Mr Chan said.

Guangzhou's new airport, operational in the middle of next year, would put pressure on the company's airport-based sales, he said.

Guangzhou has vowed to turn its 19.6 billion yuan Baiyun airport into a premier aviation hub.

Memphis-based express carrier Federal Express (FedEx) is evaluating Baiyun as a potential south China hub should it chose to move from Subic Bay, in the Philippines, when the lease expires in 2007.

The global express operator this month signed a non-binding letter of intent with the Guangzhou Airport Authority giving it access to the information it needs to evaluate whether the site would be suitable as an express hub.

Mr Chan said: 'Although Shenzhen airport has always been interested in investing in finance businesses, the completion of Baiyun airport is a real threat. It definitely will speed up its diversification plan.' Mainland-based analysts are more optimistic about the company's continued airport contribution, however.

Zhang Guotian, a Shenzhen-based analyst for China Merchants Securities,  did not expect a drop in passenger volume at Shenzhen when Baiyun opened. Its strong domestic network would continue to be its saving grace, he said.

He also expected the factories around Shenzhen to support its cargo growth: 'People will fly to the most convenient location and I don't think passengers will flow to Guangzhou. It's uncertain whether China Southern Airlines will move its cargo hub from Shenzhen to Baiyun. But there is strong cargo demand here.'

China Southern China flies its B747-400 freighters to Liege, Belgium, from Shenzhen via Shanghai.



Shenzhen Airport takes stake in funds giant