In light of the strong holiday travel season and continued U.S.-China trade deal progress, these five Chinese transportation companies with strong profitability stand in a good position to benefit from increased trade optimism: Hainan Meilan International Airport Co. Ltd. (HKSE:00357, Financial), Shanghai International Airport Co. Ltd. (SHSE:600009, Financial), Xiamen International Airport Co. Ltd. (SHSE:600897), Guangzhou Baiyun Airport Co. Ltd. (SHSE:600004, Financial) and China Southern Airlines Co. Ltd. (ZNH, Financial)(SHSE:600029).
Dow flies higher on continued trade deal progress
On Monday, Dec. 23, the Dow Jones Industrial Average closed at 28,551.53, up 96.44 points from Friday’s close of 28,455.09 on news that China will reduce tariffs on over 850 products as the country “looks to boost imports,” according to Reuters. The two countries announced earlier this month a “phase-one” trade deal in which the they will reduce tariffs on exports in exchange for Chinese purchases of American farm products.
Dow component Boeing Co. (BA, Financial) also contributed to gains as the aerospace giant ousted CEO Dennis Muilenburg on the grounds of lingering issues regarding the 737 Max. Gurus cheering on Muilenburg’s departure from the company include Andreas Halvorsen (Trades, Portfolio), Spiros Segalas (Trades, Portfolio) and PRIMECAP Management (Trades, Portfolio).
Airports expect high passenger traffic
Airlines for America, a trade organization that works collaboratively with U.S.-based airlines, said on its website that 47.5 million U.S. passengers will travel by air during the 2019 holiday season, up 3% from the prior holiday season. With the expected increase in air travel and continued trade progress between the U.S. and China, investors may want to seek opportunities in Chinese airports and airlines.
According to GuruFocus’ global market valuation pages, the China stock market remains undervalued, with an expected contribution to annual return of 17.04% over the next eight years assuming market valuations revert to the mean.
Hainan Meilan International Airport
Hainan Meilan engages and generates revenues from operational activities at the Meilan Airport, including terminal facilities, ground handling services and passenger services. GuruFocus ranks the airport’s profitability 10 out of 10 on several positive investing signs, which include a 4.5-star business predictability rank, a strong Piotroski F-score of 7 and operating margins that are outperforming 97.15% of global transportation companies despite contracting over the past five years.
Shanghai International Airport
Shanghai International Airport offers terminal, grounding and passenger services at two major airports in East China: Pudong Airport and Hongqiao Airport. GuruFocus ranks the company’s financial strength 9 out of 10 and profitability 10 out of 10 on several positive investing signs, which include a strong Altman Z-score of 20.3, a five-star business predictability rank and operating margins that have increased approximately 5.90% per year over the past five years and are outperforming over 97% of global competitors.
Xiamen International Airport
Xiamen International Airport offers ground services, property leasing services and other operations at Gaoqi Airport. GuruFocus ranks the company’s financial strength 10 out of 10 and profitability 9 out of 10 on several positive investing signs, which include robust interest coverage, strong Piotroski F and Altman Z-scores and operating margins that are outperforming 94.75% of global competitors despite contracting over the past five years.
Guangzhou Baiyun International Airport
Guangzhou Baiyun International Airport provides aviation services at its airport in South China, including departure, arrival, flight information and other airport services. GuruFocus ranks the company’s financial strength 7 out of 10. Even though Guangzhou Baiyun’s Altman Z-score is slightly below the safe threshold of 3, the company’s debt ratios are outperforming over 86% of global competitors.
China Southern Airlines
China Southern Airlines, the main airline at Guangzhou Baiyun, operates over 2,000 flights to over 195 destinations around the globe, including the U.S., the UK, Canada and Europe. GuruFocus ranks the airline’s profitability 7 out of 10. Operating margins are outperforming just 64.65% of global competitors despite increasing approximately 18.20% per year on average over the past five years. GuruFocus ranks China Southern’s business predictability four stars out of five.
Jim Simons (Trades, Portfolio)’ Renaissance Technologies owns 403,200 shares of China Southern as of the quarter ended on Sept. 30, 2019.
Disclosure: No positions.
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