China travel rebound bets turn toward airports, away from airlines

Trip.com

23/03/2023 06:23

By Ankur Banerjee
       SINGAPORE, March 23 (Reuters) - Investors hoping to cash
in on a boom in Chinese travel after nearly three years of
pandemic lockdowns are shifting into airports, hotels and
duty-free operators and away from airlines subject to
fluctuating fuel prices and more intense competition.
    The first wave of bullishness as China began abandoning its
zero-COVID policy in December lifted airline stocks and online
travel agencies like Trip.com Group Ltd  9961.HK . 
        But with global airlines being slow to add capacity to
connect China with the U.S. and Europe and Chinese travellers
preferring trips closer to home, a new set of stocks is
benefiting.
    Thailand has re-emerged as a favourite destination for
Chinese travellers, and also for investors.
    "We were active earlier in terms of domestic travel, lodging
space and airports, where we've done quite well," said Elaine
Tse, portfolio manager at Allspring Global Investments. Tse said
the firm has locked in some profits from those bets.
    "We are optimistic on a rebound in regional and
international travel and continue to get exposure through
airports and airplane leasing." 
    Shares of airports, such as Airport of Bangkok  AOT.BK  and
Shanghai International Airport  600009.SS  have underperformed
the big three Chinese airlines Air China  601111.SS , China
Eastern  600115.SS  and China Southern  600029.SS  since the
start of November, leaving room for further gains in the former.
    Investors say airline stocks are not only expensive, but
their earnings tend to be volatile and susceptible to swings in
oil prices.
    Shares of Air China, China Eastern and China Southern have
gained between 7% to 17% in the past four months, with Air China
and China Southern trading above their 5-year average forward
earnings, according to Refinitiv data. 
    In contrast, China Tourism Group Duty Free Corp  601888.SS 
trades at 28 times its forward earnings, well below a 5-year
average. 
        
    In the battle for Chinese travelers, local airlines are
expected to fare better than regional airlines such as Qantas
 QAN.AX , Singapore Airlines  SIAL.SI  and Cathay Pacific
 0293.HK , mainly because Chinese airlines kept more widebody
planes and staff ready.         
    China expects inbound and outbound tourist numbers in 2023
to reach more than 90 million, recovering to 31.5% of
pre-pandemic levels. All three Chinese airlines are expected to
swing to profit in 2023 after reporting big losses last year,
according to Refinitiv data. 
    Analysts expect Chinese airlines will see profits peak next
year as international traffic makes a fuller rebound. 
    "I think we need to be patient and wait for the earnings to
kick in to drive the valuations down," said Vey-Sern Ling,
senior equity advisor at Union Bancaire Privee.       
    
 
    Hilde Jenssen, head of fundamental equities at Nordea Asset
Management, has bought some consumer discretionary companies
exposed to tourism such as duty-free operators in hopes of
capturing secondary effects of the reopening. 
    While investors were betting at the start of the year that
sky-high Chinese household savings, which jumped to 17.8
trillion yuan  ($2.61 trillion) last year, will lead to a
post-pandemic splurge, Chinese consumers have so far been
cautious.
    Jenssen said earnings from some consumer discretionary
companies showed they were restocking inventories in 
anticipation of strong demand. 
    "It might not be sort of the big bang that everybody was
hoping for at the beginning of the year ... (but) there is
definitely some pent up demand."
($1 = 6.8222 Chinese yuan renminbi)

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Airports v Airlines performance since November    https://tmsnrt.rs/3LJUC2H
Travel stocks performance following China reopening Travel
stocks performance following China reopening    https://tmsnrt.rs/3Z5NZup
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Ankur Banerjee in Singapore; Editing by Vidya
Ranganathan and Jamie Freed)
 ((ankur.banerjee@thomsonreuters.com;; Mobile - +65 8121 3925;
Twitter: @AnkurBanerjee17;))