Optimism over a travel boom in southern China has fueled a surge in shares of China’s third-biggest airport. But some analysts say the rally in Shanghai-listed Guangzhou Baiyun International Airport Co. will probably run out of steam soon.
Baiyun Airport has gained 25 percent this year, outperforming a 20 increase in the broader A-share market. It was mainly fueled by bets that last year’s 32 percent plunge was too steep. They also advanced on optimism a travel boom and China’s plans to develop the Greater Bay area, where the airport is located, will drive traffic.
Despite the surge in Baiyun Airport’s share prices, overseas investors have been selling the stock steadily in recent weeks. Foreign investors have sold 960 million yuan worth of the stock through the China-Hong Kong stock connect scheme as of Feb. 14 this year, the highest among all mainland stocks traded through the system.
Morgan Stanley analyst Grace Li believes its current valuation is "unjustified" and the recent rally is overdone, given the market’s pessimism about its fundamentals this year. “It is still early to turn positive on the stock because fourth quarter 2018 and first quarter 2019 results may still surprise on the downside,” Morgan Stanley’s Grace Li wrote on Feb 17.
This year’s rally has driven Guangzhou airport’s valuation premium above its peers. The stock is now trading at 25 times of its blended forward earnings estimate, the highest in more than 11 years. It’s also higher than the 21 and 22 times for Shenzhen Airport Co. and Shanghai International Airport Co., according to data compiled by Bloomberg News.
Guangzhou Airport’s net income fell 23 percent in 2018 and is set to drop a further 20 percent in 2019, according to 10 analyst estimates compiled by Bloomberg.
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