上海机场(600009)

1H 2018 net profit of RMB 2,022m was within our expectations

1H 2018 net profit was 45% of our full-year forecast and 46% of consensus.2H earnings are usually stronger . 1H 2018 passenger traffic growth was anencouraging 7.5% y/y, which drove 1H net profit growth of 19% y/y. 2Q netprofit of RMB 1,004m was up 11% y/y driven by 9.4% y/y overall traffic growth(international traffic growth an impressive +15.4% y/y).

Outlook for the rest of the year

Management maintains its full-year traffic target of 73.9m passengers (+5.6%increase y/y compared with our 6% assumption) and is confident of continuedgrowth in the second half of 2018. The new satellite concourse is 70% completedand its connecting shuttle train system is 90% completed as at the end of 1H 2018.The expansion project is on schedule to start operation in 2H 2019, increasingtotal capacity of the airport to 80m.

We continue to like SHA; one of our top Buys in AP AC airports coverage

We forecast earnings growth of 20.9% and 24.6% in 2018-2019E, respectively, aswe see: (1) duty-free revenue sharing rate increase from 25% to 42.5% in 2019E;and (2) traffic growth of 5.9-6.3% p.a. over the next two years as the new satelliteconcourse opens. The company's healthy net cash of CNY9.3bn at the end of2018E and strong FCF mean that it is in a position to materially increase dividendsto shareholders.

On 6th Aug 2018, the Shanghai Party Discipline Inspection Commission reportedthat Wu Jianrong, the chairman and deputy Party secretary of Shanghai AirportGroup, which is the holding company of SHA, was placed under investigation forserious violations of Party discipline and laws. This may have caused short-termnegative sentiment on the stock over that time period.