UBS issued a revision on Shanghai International Airport Co (600009:CH), reducing the price target to RMB26.40 from the previous RMB30.00, while keeping a Sell rating on the stock. The adjustment comes as a response to anticipated declines in per-passenger duty-free spending.
UBS's analysis suggests a significant reduction in expected earnings per share (EPS) for the years 2024 to 2027, ranging from 14% to 29%. The firm attributes this downward revision to a combination of factors, including the current economic environment and competitive pressures. Despite recent policy easing by the central government, UBS believes it is premature to hold a positive view on the future of duty-free concession revenues for Shanghai International Airport.
The analyst points to several challenges that may impact revenue, such as consumer down-trading, the growing competition from e-commerce platforms and domestic brands, and the slow pace of new store openings by luxury brands. These factors are expected to negatively affect per-passenger spending, a key revenue source for the airport.
The report also compares the airport's valuation to historical averages, noting that Shanghai International Airport is currently trading at 41 times its one-year forward price-to-earnings (PE) ratio. This figure is nearly double the average PE ratio of 22 times from 2017 to 2019, a period when the company experienced similar net profit growth.
Based on these observations, UBS concludes that the stock is overvalued at its current price. The firm reiterates its Sell rating, signaling caution to investors regarding the airport company's stock in the near term.
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