Thursday, March 15, 2012

BCIA purchased

I added a few shares in BCIA (HK:694) to the portfolio this afternoon. At first glance, BCIA is not the sort of stock I would be interested in - it has high levels of debt (much of which falls due in 2015, 2016 and 2017), a modest ROE, is selling at a trailing PE of 25x and had a patchy record of paying dividends.

However, it is starting to show signs of being a major beneficiary of China's growing demand for air travel and I expect that revenues (from all sources) will continue to rise for some time. Simply doubling the interim result suggests a 2011 PE of around 15 and a return to paying dividends on a regular basis (although at very modest levels initially). Essentially I am betting on BCIA being able to grow its revenues for a number of years. The nature of the asset and its monopolistic status give me some comfort on the gearing.

In terms of personal experience, given that delays in arrival and departure times are routine, I would expect that BCIA will need to spend some money on expanding capacity to meet rising demand at some stage. The potential for future CAPEX and the maturity profile of the existing debt are my two main concerns.

I paid HK$4.27 per share.


Anonymous said...

Do you have any thoughts about competition from high speed trains?

traineeinvestor said...


Good question. The short answer is that I am not overly concerned. The airlines are still growing rapidly and flight and passenger numbers are still increasing (up again in January). The experience elsewhere has been that airports can continue to grow even with increased competition. Heathrow is a good example - even with the Chunnel and the expansion of other London airports and the market being reasonably mature, passenger numbers and flights have continued to increase in spite of the competition (although not at very impressive rates).

Beijing currently suffers much less from such competition and I believe/hope that this will remain true even with a second airport and the high speed trains. It helps a lot that demand for air travel is still growing at a good rate - the PRC market is nowhere near mature (again, compared to London).

Anonymous said...

Take a look at Samui Airport Property Fund listed in Bangkok - Admittedly not much growth potential but may suit for high yield part of portfolio. Also can fly there to check it out and say it is work !

JD said...

"a major beneficiary of China's growing demand for air travel"

Why not buy TravelSky Tech 696 then? Numbers look fine and good prospect I think.

traineeinvestor said...

@ JD Thanks for the suggestion. The numbers did look good - lots of operating cash flow, no borrowings etc but I was somewhat put off by the change in the auditors - in spite of the reason given