Beijing airport soars after subsidies extended
Beijing Capital International Airport saw its shares rise as much as 10 per cent in Hong Kong yesterday after the central government extended its subsidies by five years, removing a major obstacle to floating its shares on the mainland.
The subsidy is a share of airport construction fees, which are embedded in airfares and comprise charges levied by the central government to offset its investment in airports.
Only three airports are entitled to share their construction fees with the central government, namely the Beijing airport, Hainan's Meilan International Airport and Guangzhou Baiyun International Airport.
Retaining the subsidy, which expired on December 31, is vital to the Beijing airport as that is its most important source of earnings.
Its shares closed 7.7 per cent higher at HK$4.62 yesterday.
The extension removes uncertainty about the airport's intended A-share listing and its plan to repay its parent, Capital Airports Holding.
The airport operator, which has a net debt to equity ratio of 148 per cent, piled up debt from its acquisition of Terminal 3. That purchase contributed a huge depreciation cost, cutting profit to 80 million yuan (HK$94.14 million) in 2008 from 1.4 billion yuan before the acquisition.
Jim Wong, transport analyst at Nomura Securities, said the policy extension was a long-term positive. 'It is the best-case scenario for the company, given it was granted a one-year extension last time.'
Wong predicted the airport would see its earnings grow 57 per cent annually over the next three years and net profits should swing back to 1.2 billion yuan next year.
Still, the operator faces future risk as the Beijing government is studying building a second airport in the south of the city by 2015. Beijing Airport is likely to acquire this new airport, which could be another cash-draining investment.
