Beijing Capital International Airport

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1 Beijing Capital International Airport Strong 3Q earnings growth reported; we continue to see solid growth in 2017 despite near-term headwinds BCIA released Oct traffic data last Friday (Nov 11), along with the 9M16 financial figures, the latter as part of a short-term bond issuance prospectus. Overall new data points came across as a mixed bag, as BCIA's 3Q16 profit growth surged to 23% Y/Y, but October saw softer-than-expected int'l traffic growth. We retain our positive stance and would recommend buying on dips as we continue to see solid earnings growth profile for BCIA. Positive read-through from the bond prospectus: 3Q16 profit growth accelerated to 23% Y/Y, up from 10% Y/Y increase in 1H16. 9M16 profit rose 14% Y/Y, on track to achieve our above-consensus forecast. Two new findings from the bond prospectus: (1) Non-aeronautical revenue growth YTD has been affected by VAT reform imposed from May 1, impacting several items including rental income, car parking fee and restaurant revenue. We highlight that the decline in non-aero revenue growth narrowed sequentially in 3Q16 while retailing concession revenue growth remained robust at +11% Y/Y for 9M16. (2) Contributions by major airline customers were disclosed for the first time, showing Air China as BCIA s largest and most profitable customer. Int'l PAX grew 4.6% Y/Y in Oct, weaker than the underlying trend; growth could rebound from Dec. Outbound tourism in recent months has been negatively affected by a weaker Rmb, Thai king passing as well as various policies imposed recently that have deterred travel to countries including Korea and Thailand. Per the scheduled int l departures schedule, we expect int l growth to remain soft in Nov but recovery to commence from Dec. We expect int'l traffic growth to reaccelerate in 1H17 given the recently announced Winter-Spring flight schedule that will see average daily int l flights increase 8.4% Y/Y, the largest upward adjustment in the past two years. Interest cost to fall, with upcoming Rmb2.5B short-term bond issuance for refinancing. BCIA plans early refinancing of the Rmb3B corporate bond maturing on 3 Feb We expect interest savings, with a sub-3% interest rate likely for this one-year bond. Model update: Conservatively factoring in weak int'l traffic for Nov-Dec, we lowered FY16/17E earnings by -3%/-2%. Recovery in int'l traffic from Dec would bring upside to our FY16E, while our revised FY17E stands at 12% above consensus. Maintain OW, with DCF-based Dec-17 PT unchanged at HKD15.5. Beijing Capital International Airport (Reuters: 0694.HK, Bloomberg: 694 HK) Rmb in mn, year-end Dec FY14A FY15A FY16E FY17E FY18E Total Revenue (Rmb mn) 7,557 8,387 8,665 9,216 9,709 Net Profit (Rmb mn) 1,391 1,642 1,855 2,314 2,620 EPS (Rmb) DPS (Rmb) Revenue growth (%) 6.0% 11.0% 3.3% 6.4% 5.4% EPS growth (%) 4.7% 18.0% 13.0% 24.7% 13.3% ROCE 6.0% 7.0% 7.6% 9.2% 10.1% ROE 8.3% 9.3% 9.9% 11.5% 12.2% P/E (x) P/BV (x) EV/EBITDA (x) Dividend Yield 1.9% 2.2% 2.5% 3.1% 3.5% Source: Company data, Bloomberg, J.P. Morgan estimates. Overweight 0694.HK, 694 HK Price: HK$7.85 Price Target: HK$15.50 China Infrastructure, Industrials & Transport Karen Li, CFA AC Bloomberg JPMA KLI <GO> Calvin C Wong, CFA (852) calvin.wong@jpmorgan.com Boyong Liu, CFA (852) boyong.liu@jpmorgan.com Hanli Fan (852) hanli.fan@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited Price Performance HK$ Nov-15 Feb-16 May-16 Aug-16 Nov HK share price (HK$) MSCI-HK (rebased) YTD 1m 3m 12m Abs -3.0% -11.7% -18.7% -8.6% Rel -8.0% -8.1% -17.3% -12.3% Company Data Shares O/S (mn) 4,331 Market Cap (Rmb mn) 29,850 Market Cap ($ mn) 4,382 Price (HK$) 7.85 Date Of Price 11 Nov 16 Free Float(%) - 3M - Avg daily vol (mn) M - Avg daily val (HK$ mn) M - Avg daily val ($ mn) 5.2 MSCI-HK 1, Exchange Rate 7.76 Price Target End Date 31-Dec-17 See page 11 for analyst certification and important disclosures, including non-us analyst disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

2 Key catalyst for the stock price: Upside risks to our view: Downside risks to our view: Further accelerated int'l traffic growth Potential tariff hike Additional landing slots to be awarded in the coming review window for taking-off/landing quota Stronger-than-expected traffic growth Better-than-expected cost control Unexpected tariff hike Weaker-than-expected traffic growth Faster-than-expected increase in costs Policy risk on the renewal for revenue sharing of airport fee with the government Key financial metrics FY15A FY16E FY17E FY18E Valuation and price target basis Revenues (LC) 8,387 8,665 9,216 9,709 Our Dec-17 PT of HK$15.5 is derived based on DCF valuation. Revenue growth (%) 11% 3% 6% 5% Our PT translates into a target P/B of 2.8x/2.6x, Op-CF to EV yield EBITDA (LC) 4,378 4,631 5,053 5,400 of 7.1%/7.5% and EV/EBITDA of 12.1x/11.3x on FY17/FY18E. EBITDA margin (%) 52% 53% 55% 56% Tax rate (%) 25% 25% 25% 25% Net profit (LC) 1,642 1,855 2,314 2,620 EPS (LC) EPS growth (%) 18% 13% 25% 13% BCIA historical 1yr forward P/B vs ROE band chart DPS (LC) BVPS (LC) Operating cash flow (LC mn) 4,157 4,075 4,363 4, Free cash flow (LC mn) 2,120 3,517 3,789 4, Interest cover (X) Net margin (%) 19.6% 21.4% 25.1% 27.0% 2.2x 6.0 Sales/assets (X) x 4.0 Debt/equity (%) 64% 47% 28% 26% Net debt/equity (%) 52% 39% 25% 10% x 0.0 ROE (%) 9.3% 9.9% 11.5% 12.2% Key model assumptions FY15A FY16E FY17E FY18E LT historical P/B Avg P/B LT historical P/B -1 STDEV Aircraft movement growth (%) 1.4% 2.5% 1.9% 1.5% LT historical P/B +1 STDEV 1yr fwd P/B (x) Int'l PAX growth (%) 8.9% 8.1% 9.2% 7.2% 1yr fwd ROE (RHS, %) Source: Company and J.P. Morgan estimates. Source: Bloomberg, Company and J.P. Morgan estimates. Sensitivity analysis EBITDA EPS JPMe vs. consensus, change in estimates Sensitivity to FY15E FY16E FY15E FY16E EPS FY16E FY17E +1% chg in traffic 1% 1% 2% 2% JPMe old % chg in cash opex -1% -1% -1% -1% JPMe new Source: J.P. Morgan estimates. % chg -3% -3% Consensus Source: Bloomberg, J.P. Morgan estimates. Comparative metrics CMP Mkt Cap P/E EV/EBITDA P/BV YTD LC $Mn FY16E FY17E FY16E FY17E FY16E FY17E Stock perf. Beijing Int'l Capital Airport , Shanghai Int'l Airport 27 7, Guangzhou Baiyun Int'l Airport , Airport of Thailand , Malaysia Airport , Sydney Airport , Source: Bloomberg, J.P. Morgan estimates. Prices are as of 11/13/2016 2

3 Table 1: Headline 9M16, 1H16, 3Q16 revenue reported by the company Headline 9M16 aeronautical revenue on track while nonaero revenue was weak partially due to VAT reform 9M16 aeronautical revenue increased by 5% Y/Y, achieving 75% of prior JPMe. The growth rate is in line with JPMe. 3Q16 aeronautical revenue rose by 6% Y/Y, ahead of the underlying growth rate. Our discussion with mgmt yielded a new finding for us that the weak nonaeronautical revenue growth YTD has been in part caused by the impact from VAT reforms, implemented from May1. Headline 9M16 non-aeronautical revenue was weak, down by 0.9% Y/Y partially due to the negative VAT impact on gross revenue of rental, car parking and restaurants. Based on JPM calculations, by taking out the VAT impact, 1H16 non-aero revenue decreased by 0.7% Y/Y (in contrast to a decline of 1.1% Y/Y reported) and 9M16 non-aero revenue decreased by 0.3% Y/Y (in contrast to a decline of 0.9% Y/Y reported). 3Q16 recorded a positive growth rate of 0.6% Y/Y compared with a headline non-aero revenue decline of 0.6% Y/Y. Retailing kept solid growth momentum by rising 10% Y/Y in 3Q16, while advertising and car parking continued their weak performance from 1H16 and restaurants turned into a decline from 3Q16. We highlight that 9M16 ground handling income decreased by 58% as BCIA has not received concession fees from major clients, but we expect the concession fees will be collected by year-end. BCIA reported Rmb1.4B net profit in 9M16, up by 14% Y/Y and achieving 76% new JPMe on the back of continuing robust cost control and margin expansion. Net profit growth in 3Q accelerated from 1H16 by registering 23% Y/Y growth compared with 10% Y/Y in 1H16. Previously, BCIA did not disclose its 9M financial performance. As a reference, traffic data in the first nine months usually account for c75% of the annual data, and hence 76% achieving ratio is in line with our net profit forecast as we have considered weak traffic data in 4Q16. Revenue breakdown 9M16 9M15 Y/Y FY16 % 1H16 1H15 Y/Y 3Q16 3Q15 Y/Y chg% JPMe Achieved Total aeronautical revenue 3,624 3,451 5% 4,811 75% 2,338 2,234 5% 1,286 1,216 6% Passenger Charges 1,418 1,347 5% % % Aircraft movement fees and related charges 1,307 1,246 5% % % Airport fee % % % Total non-aeronautical revenue 2,860 2, % 3,907 73% 1,902 1, % % Rental % % % Car parking % % % Others % % % Concession 1,942 1, % 1,292 1, % % Retailing % % % Advertising % % % Ground Handling % % % Restaurants % % % VIP service % % % Others % % % Source: Company data, J.P. Morgan 3

4 Table 2: JPM revised 9M16, 1H16, 3Q16 revenue by taking out VAT reform impact Revenue breakdown 9M16 9M15 Y/Y FY16 % 1H16 1H15 Y/Y 3Q16 3Q15 Y/Y chg% JPMe Achieved Total aeronautical revenue 3,624 3,451 5% 4,811 75% 2,338 2,234 5% 1,286 1,216 6% Passenger Charges 1,418 1,347 5% % % Aircraft movement fees and related charges 1,307 1,246 5% % % Airport fee % % % Total non-aeronautical revenue 2,860 2, % 3,907 73% 1,902 1, % % Rental (note) % % % Car parking (note) % % % Others % % % Concession 1,942 1, % 1,292 1, % % Retailing % % % Advertising % % % Ground Handling % % % Restaurants (note) % % % VIP service % % % Others % % % Source: Company data, J.P. Morgan Note: To reflect VAT reform implemented from 1 st May 2016, 2015 revenue for rental, car parking, and restaurants were adjusted down by 1% in 1H15 and 3% in 3Q16 to take out business taxes. Oct int l traffic growth remained soft with additional headwinds expected in Nov, but growth likely to rebound from Dec 16 BCIA reported October int l AM growth of 3.1% Y/Y while int l PAX rose 4.6% Y/Y. Oct growth came in below the YTD underlying growth trend for 9M16 (int l AM +7%, and int l PAX +9% Y/Y in 9M16) though we note that the 10M growth numbers of +6.3% Y/Y for int l AM and +8.6% Y/Y for int l PAX remain solid. We note that the int l traffic growth rate has been slowing since August on the back of a slowdown in outbound tourism affected by the weaker Rmb as well as the recent crackdown on zero-fee packaged tours and politically sensitive issues in various countries including Korea and Thailand. Furthermore, according to BCIA s Nov 16 int l departure schedule (which is based on data reported by individual airlines and historically has a high correlation with BCIA's actual AM growth), int l traffic growth could remain under pressure this month before seeing some rebound in December this year. 4

5 Figure 1: BCIA scheduled int'l departure flight growth vs BCIA historical int'l AM/PAX growth rate 25% 20% 15% 10% 5% 0% -5% November growth under pressure, but we expect to rebound from Dec. -10% Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Source: Capstat, Company data, J.P. Morgan BCIA scheduled int'l departure flight growth rate BCIA historical int'l AM growth rate BCIA historical int'l PAX growth rate However, as per the recently announced Winter-Spring flight schedule, which will see average daily int l flights increase 8.4% Y/Y for the whole season (from November 2016 to March 2017), we believe int l traffic growth could reaccelerate in 1H17, particularly given the company s medium-term traffic mix targets of 30% int l AM and 33% int l PAX mix by 2020 (vs JPMe of 27% and 30% by 2020 respectively and 23% and 26% respectively for FY16E). Hence, we maintain our positive view on BCIA s structural growth outlook despite the abovementioned nearterm pressures. New disclosure showing revenue and traffic share for Big 4 airlines As part of the bond issuance disclosure document, BCIA included information that shows the revenue and traffic shares of the big 4 airlines (Air China or AC, China Southern Airline or CSA, China Eastern Airline or CEA and Hainan airlines) for the airport. Unsurprisingly, AC is BCIA s largest customer accounting for c20% of total revenue in FY15. CSA and CEA followed with CSA accounting for c6% of revenue and CEA for c5%. With respect to traffic, c38% of total traffic came from AC followed by c15% for CSA and c13% for CEA. By accounting c28% of traffic, CSA and CEA contributed c11% of total revenue. The impact of CSA and CEA moving to the 2 nd airport from 2019 is likely not as significant as suggested by the market share losses. As AC uses BCIA as its operational hub, AC operates a much higher proportion of int l routes flying out of Beijing as compared with the other major airlines. As a result, we also see that the 2015 revenue per PAX of crmb60 for AC is also the highest amongst the 4 airlines. However, we note that the revenue figures likely only capture revenue directly attributable to the airlines and hence indirect revenues such as non-aero spending at BCIA by passengers who fly AC are likely not reflected. Thus, given AC has a higher proportion of int l route offering through BCIA compared with the other airlines and int l passengers tend to have much higher average spending as compared with domestic travelers, we would expect the 5

6 differential for AC s all-in revenue per PAX (including both direct and indirect revenues) to be even larger. As per the current transition plan, it is expected that CSA and CEA will move operations to the new airport after it becomes operational in late 2019/early If we assume that AC will continue to expand its international route offering using BCIA as its home base and be able to absorb some of the freed-up capacity from the departure of CSA and CEA, then we believe the blended revenue per PAX may actually rise post-2 nd airport launch with BCIA s profitability actually increasing. It is estimated that BCIA does not generate much profit from domestic traffic and hence if flights that are shifted away from BCIA are predominantly domestic in nature, if these flight slots are filled with a higher percentage of int l flights, this mix shift could actually raise profits despite lower overall traffic volumes. Table 3: 2015 traffic and revenue from airlines AM (sortie) PAX (ppl) Revenue (Rmb'MM) Revenue/PAX (Rmb) AC 226,035 33,996,801 1, CSA 84,984 13,310, CEA 75,542 11,332, Hainan 53,115 9,443, Other airlines 150,493 21,855,087 Total - big 4 439,676 68,083,541 3,046 Total 590,169 89,938,628 8,510 Source: Company data, J.P. Morgan Table 4: 2015 traffic and revenue % of share from airlines AM PAX Revenue AC 38% 38% 20% CSA 14% 15% 6% CEA 13% 13% 5% Hainan 9% 11% 5% Other airlines 26% 24% Total - big 4 75% 76% 36% Source: Company data, J.P. Morgan Table 5: 9M16 traffic and revenue from airlines AM (sortie) PAX (ppl) Revenue (Rmb'MM) Revenue/PAX (Rmb) AC 172,653 26,564,400 1, CSA 62,989 10,173, CEA 57,551 8,689, Hainan 41,237 7,559, Other airlines 118,727 17,662,500 Total - big 4 334,430 52,987,500 2,986 Total 453,157 70,650,000 6,477 Source: Company data, J.P. Morgan Table 6: 9M16 traffic and revenue % of share from airlines AM PAX Revenue AC 38% 38% 25% CSA 14% 14% 8% CEA 13% 12% 7% Hainan 9% 11% 7% Other airlines 26% 25% Total - big 4 74% 75% 46% Source: Company data, J.P. Morgan 13 th FYP capex plan released which includes uncommitted capex Within the bond issuance prospectus, BCIA also announced a list of potential new construction projects for the 13 th FYP period (from 2016 to 2020) with total investment of Rmb4.4B. This list includes projects that were previously already announced such as the parking apron expansion works (crmb643mm) and middle runway overhaul (crmb229mm), as well as previously unannounced projects such as the western runway overhaul (crmb350mm) and western runway upgrade (crmb1,350mm) projects. Based on our discussion with management, the projects listed in the prospectus do not represent committed capex, but are instead a list of potential projects that could be executed within the 13 th FYP with most still requiring further assessment and approval. As a result, mgmt believes that the full investment amount of Rmb4.4B 6

7 likely represents the high-end of the total capex investment range for the coming 4 years. However, as BCIA does not yet have concrete spending plans for this set of projects (while some projects may end up not moving forward), we have not yet factored these additional investments into our model. We also highlight that the 4 th runway project, which is still awaiting government approval, was noticeably missing from the project list. Hence there is still uncertainty with respect to the timeline for this project while we believe we may not see much progress made before year-end. Thus, the 4 th runway project represents additional incremental capex if it gets the final greenlight. Table 7: BCIA Capex plan for 13th FYP Rmb'MM Total investment Additional parking apron (Phase I) 183 Additional parking apron (Phase II) 460 Western runway overhaul 350 Overhaul of middle section of middle runway 229 High-performance de-icing vehicle 354 Construction of charging facilities in airfields 290 Overhaul upgrade of T3 security check system 235 Western runway field benchmarking and upgrade and type III operation upgrade 1,350 Other projects 964 Total 4,415 Source: Company data, J.P. Morgan Investment Thesis, Valuation and Risks Beijing Capital International Airport (Overweight; Price Target: HK$15.50) Investment Thesis We believe the capital s airport assets are undervalued, while its growth potential is underestimated despite its distinctive business model and still-young maturity profile. We expect BCIA s EPS growth to rebound to a 19% CAGR over FY16-18, driven by margin expansion, as top-line growth is expected to come in above that of overall traffic on accelerating international traffic growth, while BCIA will look to control operating expense growth at low single-digit levels. We are turning more positive on international traffic growth at the capital airport, which, along with changes in business models for concession-based operations (including advertising, retailing and restaurants), would drive faster expansion of the non-aeronautical businesses for BCIA, leading to improving profitability. Key drivers for the acceleration in international traffic growth include: 1) continued lift in airfield for international flights; and 2) prioritizing the airport s resources on international flights by way of a gradual shifting of some less desirable domestic routes to nearby airports. We also see payout upside on the back of improving CF generation and limited capex commitments in the near term. Other positive catalysts include potential tariff hikes driven by ongoing pricing reform for the utility/soe sectors, and potential deregulation of the DFS industry. 7

8 Valuation Our Dec-17 PT of HK$15.50 is derived based on DCF valuation. Our PT translates into a target P/B of 2.8x/2.6x, an Op-CF/EV yield of 7.1%/7.5% and EV/EBITDA of 12.1x/11.3x on FY17E/FY18E. The discount rate used in our DCF analysis is based on the following assumptions: Risk-free rate: 5% Market risk premium: 6% Beta: 1.0x After-tax cost of debt: 3.8% Terminal g: 2% Target gearing: 20% =>WACC: 9.3% Terminal capex: Rmb100M Risks to Rating and Price Target Downside risks to our view include weaker-than-expected traffic growth, faster-thanexpected increases in costs, and the cancelation of airport construction fees or a discontinuation of revenue share. Further catalysts include stronger-than-expected traffic growth, better-than-expected cost control and unexpected tariff hikes. 8

9 Beijing Capital International Airport: Summary of Financials Income Statement Cash flow statement Rmb in millions, year end Dec FY14 FY15 FY16E FY17E FY18E Rmb in millions, year end Dec FY14 FY15 FY16E FY17E FY18E Revenues 7,557 8,387 8,665 9,216 9,709 EBIT 2,385 2,784 2,976 3,364 3,692 % change Y/Y 6.0% 11.0% 3.3% 6.4% 5.4% Depr. & amortization 1,454 1,593 1,656 1,689 1,708 EBITDA 3,839 4,378 4,631 5,053 5,400 Change in working capital (145) % change Y/Y 0.5% 14.0% 5.8% 9.1% 6.9% Taxes (460) (555) (618) (771) (873) EBITDA margin 50.8% 52.2% 53.4% 54.8% 55.6% Other Operating Cash flow EBIT 2,385 2,784 2,976 3,364 3,692 Cash flow from operations 3,265 4,157 4,075 4,363 4,568 % change Y/Y 4.5% 16.7% 6.9% 13.0% 9.8% Capex (548) (2,396) (850) (790) (400) EBIT Margin 31.6% 33.2% 34.3% 36.5% 38.0% Other 6 (9) (7) (17) (4) Net Interest (528) (479) (389) (288) (208) Net Interest (527) (560) (389) (288) (208) Exceptionals/Non-recurring Earnings before tax 1,859 2,193 2,474 3,085 3,493 Free cash flow 3,112 2,120 3,517 3,789 4,324 % change Y/Y 4.7% 18.0% 12.8% 24.7% 13.3% Tax (468) (551) (618) (771) (873) Equity raised/(repaid) as % of EBT 25.2% 25.1% 25.0% 25.0% 25.0% Debt raised/(repaid) (1,510) (515) (2,638) (3,150) (153) Net income (reported) 1,391 1,642 1,855 2,314 2,620 Other (548) (710) (415) (304) (237) % change Y/Y 4.7% 18.0% 13.0% 24.7% 13.3% Dividends paid (533) (602) (742) (925) (1,048) Shares outstanding 4,331 4,331 4,331 4,331 4,331 Beginning cash 2,052 2,184 2,113 1, EPS (reported) Ending cash 2,184 2,113 1, ,439 % change Y/Y 4.7% 18.0% 13.0% 24.7% 13.3% DPS Balance sheet Ratio Analysis Rmb in millions, year end Dec FY14 FY15 FY16E FY17E FY18E Rmb in millions, year end Dec FY14 FY15 FY16E FY17E FY18E Cash and cash equivalents 2,184 2,113 1, ,439 EBITDA margin 50.8% 52.2% 53.4% 54.8% 55.6% Accounts receivable 1,392 1,266 1,242 1,290 1,332 EBIT Margin 31.6% 33.2% 34.3% 36.5% 38.0% Inventories Net Margin 18.4% 19.6% 21.4% 25.1% 27.0% Others Current assets 3,694 3,504 2,904 2,133 4,907 Sales growth 6.0% 11.0% 3.3% 6.4% 5.4% Net profit growth 4.7% 18.0% 13.0% 24.7% 13.3% Net fixed assets 27,299 27,750 27,007 26,172 24,933 EPS growth 4.7% 18.0% 13.0% 24.7% 13.3% Other non-current assets 918 1,437 1,416 1,393 1,367 Total Assets 31,911 32,691 31,327 29,698 31,206 Interest coverage (x) Net debt to total capital 36.8% 34.4% 27.9% 20.0% 9.3% Liabilities Net debt to equity 58.3% 52.4% 38.7% 24.9% 10.3% Short-term loans 4,310 4,645 2,247 2,247 2,247 Sales/assets Payables 1,927 2,216 2,376 2,509 2,597 Assets/equity 193.4% 182.1% 170.0% 152.0% 141.3% Others ROE 8.3% 9.3% 9.9% 11.5% 12.2% Total current liabilities 6,680 7,252 5,014 5,147 5,236 ROCE 6.0% 7.0% 7.6% 9.2% 10.1% Long-term debt 7,902 7,038 6,798 3,648 3,496 Other liabilities Total Liabilities 14,709 14,422 11,944 8,927 8,863 Shareholder's equity 17,202 18,269 19,382 20,771 22,343 BVPS Source: Company reports and J.P. Morgan estimates. 9

10 JPM Q-Profile Beijing Capital International Airport Co., Ltd. Class H (CHINA / Industrials) As Of: 11-Nov-2016 Quant_Strategy@jpmorgan.com Local Share Price Current: Mth Forward EPS Current: Jul/02 Apr/03 Jan/04 Oct/04 Jul/05 Apr/06 Jan/07 Jul/08 Apr/09 Jan/10 Oct/10 Jul/11 Apr/12 Jan/13 Jul/14 Apr/15 Jan/16 Oct/16 PE (1Yr Forward) Current: 14.6x P/E Relative to China Index Current: x 50.0x 40.0x Jun/02 Feb/03 Oct/03 Jun/04 Feb/05 Oct/05 Jun/06 Feb/07 Jun/08 Feb/09 Oct/09 Jun/10 Feb/11 Oct/11 Jun/12 Feb/13 Jun/14 Feb/15 Oct/15 Jun/ x x x x x Jun/02 Feb/03 Oct/03 Jun/04 Feb/05 Oct/05 Jun/06 Feb/07 Jun/08 Feb/09 Oct/09 Jun/10 Feb/11 Oct/11 Jun/12 Feb/13 Jun/14 Feb/15 Oct/15 Jun/ Jun/02 Feb/03 Oct/03 Jun/04 Feb/05 Oct/05 Jun/06 Feb/07 Jun/08 Feb/09 Oct/09 Jun/10 Feb/11 Oct/11 Jun/12 Feb/13 Jun/14 Feb/15 Oct/15 Jun/16 Earnings Yield (& Local Bond Yield) Current: 6.87% Dividend Yield (Trailing) Current: % 12Mth fwd EY China BY Proxy % 3.5 8% % 2.0 4% % 0.5 0% 0.0 Jun/02 Feb/03 Oct/03 Jun/04 Feb/05 Oct/05 Jun/06 Feb/07 Jun/08 Feb/09 Oct/09 Jun/10 Feb/11 Oct/11 Jun/12 Feb/13 Jun/14 Feb/15 Oct/15 Jun/16 Jun/02 Feb/03 Oct/03 Jun/04 Feb/05 Oct/05 Jun/06 Feb/07 Jun/08 Feb/09 Oct/09 Jun/10 Feb/11 Oct/11 Jun/12 Feb/13 Jun/14 Feb/15 Oct/15 Jun/16 ROE (Trailing) Current: 9.45 Price/Book (Value) Current: 1.6x x P/B Trailing P/B Forward x x Jun/02 Feb/03 Oct/03 Jun/04 Feb/05 Oct/05 Jun/06 Feb/07 Jun/08 Feb/09 Oct/09 Summary Beijing Capital International Airport Co., As Of: 11-Nov-16 CHINA TICKER 694 HK EQUITY Local Price: 7.85 Industrials Transportation Infrastructure EPS: 0.47 Latest Min Max Median Average 2 S.D.+ 2 S.D. - % to Min % to Max % to Med % to Avg 12mth Forward PE 14.56x % 243% 8% 42% P/BV (Trailing) 1.59x % 283% -13% 3% Dividend Yield (Trailing) % 82% 0% -11% ROE (Trailing) % 39% -12% -19% Source: Bloomberg, Reuters Global Fundamentals, IBES CONSENSUS, JPMorgan Quantitative & Derivative Strategy Jun/10 Feb/11 Oct/11 Jun/12 Feb/13 Jun/14 Feb/15 Oct/15 Jun/16 4.0x 3.0x 2.0x 1.0x 0.0x -1.0x Jun/02 Feb/03 Oct/03 Jun/04 Feb/05 Oct/05 Jun/06 Feb/07 Jun/08 Feb/09 Oct/09 Jun/10 Feb/11 Oct/11 Jun/12 Feb/13 Jun/14 Feb/15 Oct/15 Jun/16 10

11 Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or intervention. Important Disclosures Client: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as clients: Beijing Capital International Airport. Other Significant Financial Interests: J.P. Morgan owns a position of 1 million USD or more in the debt securities of Beijing Capital International Airport. Company-Specific Disclosures: Important disclosures, including price charts and credit opinion history tables, are available for compendium reports and all J.P. Morgan covered companies by visiting calling , or ing research.disclosure.inquiries@jpmorgan.com with your request. J.P. Morgan s Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call or research.disclosure.inquiries@jpmorgan.com. Beijing Capital International Airport (0694.HK, 694 HK) Price Chart W HK$1.7 Price(HK$) Oct 06 Apr 08 Oct 09 Apr 11 Oct 12 OW HK$7.7 OW HK$9 OW HK$8.6 OW HK$14.4 UW HK$6.8 UW HK$4.6 OW HK$7.8 OW HK$9.3 OW HK$8NR OW HK$8.3 OW HK$12.7 UW HK$5.2 N N HK$5 HK$4.5 OW HK$5.6 OW HK$4.9 OW HK$7.5 OW HK$8.3 OW HK$8.5 OW HK$8.2 OW HK$9 HK$8.6 OW HK$13.1 OW HK$15.5 Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Break in coverage Dec 18, Jan 20, Apr 14 Oct 15 Date Rating Share Price (HK$) 01-Feb-07 UW Apr-07 UW Aug-08 UW Sep-08 UW Apr-09 N Aug-09 N Feb-10 OW May-11 OW Mar-12 OW Apr-12 OW Aug-12 OW Nov-12 OW Feb-13 OW May-13 OW Jul-13 OW Aug-13 OW Dec-13 OW Dec-13 NR Jan-14 OW Feb-14 OW May-14 OW Aug-14 OW Jan-15 OW Mar-15 OW May-15 OW Aug-15 OW Price Target (HK$) The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the 11

12 average total return of the stocks in the analyst s (or the analyst s team s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst s (or the analyst s team s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst s (or the analyst s team s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-australia) and U.K. small- and mid-cap equity research, each stock s expected total return is compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst s coverage universe can be found on J.P. Morgan s research website, Coverage Universe: Li, Karen: BTS Group Holdings (BTS.BK), Beijing Capital International Airport (0694.HK), CIMC ENRIC HOLDINGS LTD (3899.HK), CRRC Corp - A ( SS), CRRC Corp - H (1766.HK), Changsha Zoomlion Heavy Industry - A ( SZ), Changsha Zoomlion Heavy Industry - H (1157.HK), China Communications Construction - A ( SS), China Communications Construction - H (1800.HK), China Cosco Holdings - A ( SS), China Cosco Holdings - H (1919.HK), China Merchants Port Holdings Co Ltd (0144.HK), China Railway Construction - A ( SS), China Railway Construction - H (1186.HK), China Railway Group Limited - A ( SS), China Railway Group Limited - H (0390.HK), Dongfang Electric Corporation Limited - A ( SS), Dongfang Electric Corporation Limited - H (1072.HK), Jiangsu Expressway - A ( SS), Jiangsu Expressway - H (0177.HK), Lonking Holdings Ltd (3339.HK), Orient Overseas Int'l Ltd (0316.HK), Pacific Basin Shipping (2343.HK), ST Engineering (STEG.SI), Sany Heavy Industry - A ( SS), Shanghai International Airport - A ( SS), Sinopec Engineering Group (2386.HK), Weichai Power - A ( SZ), Weichai Power - H (2338.HK), Zhejiang Expressway (0576.HK), Zhuzhou CRRC Times Electric Co Ltd (3898.HK) J.P. 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