CITS:Beyond market expectation for a lower concessionaire rate in Baiyun Airport

Concessionaire rate of 35% is confirmed. This means that CITS has wonthe whole duty free business of Guangzhou Baiyun Intl Airport. (inboundwas won in May 2017earlier, see below)

    International traffic for Guangzhou Baiyun is expected to be c. 14millionvs. 25million for BCIA and 35million for Shanghai Pudong.

    Operating period will be from Feb 1, 2018to Jan 31, 2026.

    Monthly guaranteed sales starts to be RMB32.9m from Aug 1, 2018.

    Annual increase of monthly guaranteed sales is c.6% of the previousamount.

    As a result, total CITS's total 8years concession expenses are estimatedto be c. RMB 1.265billion.

    To recap, CITS won the bidding for inbound duty free of GuangzhouBaiyun Intl Airport with a 42% concessionaire rate at the beginning ofMay 2017.

    The outbound duty free confirmation makes CITS the exclusive duty-freeplayer at Guangzhou Intl Airport.

    We have seen CITS becoming more aggressive in gaining duty-freemarket share at major airports this year. So far, CITS has won the biddingat HK Intl Airport, Beijing Capital Intl Airport and Guangzhou Baiyun IntlAirport.

    The dutyfree period of Sunrise Duty Free Group (Shanghai), whichoperates at Shanghai Pudong International Airport, will expire at the endof 2018E. This leaves only Shanghai as the last piece of the pie of dutyfree for CITS to take, which could be a potential positive catalyst in thenear term, in our view.