Weihai Guangtai Airport Equipment:Likely to benefit from a positive general aviation policy

A positive general aviation policy announced

    According to CARNOC.com, the NDRC recently announced The Key Tasks to Promotethe Development of the General Aviation Industry in the Near Term, including 1)developing the general aviation market; 2) accelerating the construction of generalairports; 3) promoting industry transformation and upgrading; 4) expanding the lowaltitudeairspace; and 5) strengthening safety supervision during the entire flight.

    Leading & participating parties defined, general airport construction to benefit

    We believe the policy is aimed at further implementing The Guidelines for Promotingthe Development of the General Aviation Industry released by the State Council in Maythis year. It is a top-level design defining the leading and participating parties of thevarious tasks, which demonstrates the government’s strong determination to build anddevelop the general aviation industry. The policy calls for accelerated planning ofgeneral airport layouts, requiring that provinces and municipalities that have not madethe plans should release their plans by end-2016, while provinces and municipalitiesthat have released their plans should set up their general airport construction projectpools and define key projects for 2017-18, and publicize their plans to attractinvestments from all sources; the policy also makes it clear that the leading partiesshould be the relevant provincial and municipal governments while the participatingparties should be the NDRC, CAAC, CMC’s Joint Staff Department and Air Force. Weexpect general airport construction to benefit first.

    Airport ground support equipment revenue growth could re-accelerate

    With low-altitude airspace likely to expand in 2016-20, we are positive on the generalaviation industry. The latest policy proves our positive stance. We conservativelyforecast the market for airport ground support equipment to reach Rmb400-600mduring the 13th FYP period. In the long run, we estimate general aviation airports couldbring cRmb10bn in demand for airport equipment. Guangtai has a ~80% share in theairport equipment market of regional airports and we believe the share could beroughly the same for general aviation airports. We believe the share of general aviationin the company's total airport equipment revenue will increase from 2.4% in 2016 to11.3% in 2020.

    Valuation: Rmb26.89 price target, Neutral rating

    Our 2016-18E EPS are Rmb0.63/0.76/0.95. We derive our Rmb26.89 price target usingDCF (WACC 7.6%), implying 35x 2017E PE, in the middle of the historical range.