CITS:Beijing Airport officially starts dutyfree bidding for T2&3

Milestone catalyst for CITS: BJ Airport kicked off its duty-free bidding for T2&3.

    Beijing Airport officially released its duty-free bidding details on 24 February.

    To our surprise, the official announcement stated that duty-free bidding willstart from the current Terminals 2 and 3 of the existing Beijing Airport.

    (Previously the market believed the duty-free bidding would only apply to thenew Beijing Airport that will start operations in 2019.) We believe both CITSand Sunrise (the current duty-free operator) will likely participate in the bidding.

    The opening of the bidding is to be announced at 9am on April 4, 2017. Withupside implied by our target, we have a Buy rating on CITS.

    More than 55% earnings upside potential if CITS can get both T2&3.

    International traffic in the Beijing Airport is now c. 22 million. Channel checkssuggest that Sunrise is likely to generate c.RMB8bn duty-free sales (assumingper person consumption of RMB1,500, and 25% of the traffic enters the storefor shopping). Airport duty-free is more diversified than the Haitang Bayshopping mall (generating c.RMB5bn duty-free sales) in providing tobacco andliquor, which have a higher sales turnover. Although duty-free business inmost global primary airports doesn’t have a high profit margin, we believe theduty-free business in Beijing Airport should enjoy a relatively fair profit marginas there is only one duty-free operator. If we assign a 15% net margin to thebusiness, upon getting the license, CITS is likely to generate RMB1,200m netprofit, accounting for 55% of net profit in 2018E.