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China's Guangzhou Baiyun Airport 'overweight' - Morgan Stanley

11-Apr-2007

Beijing (XFN-ASIA) - Morgan Stanley said it is initiating coverage

on Guangzhou Baiyun International Airport (GBIA) with an "overweight"

rating and 15 yuan price target as the operator is set to enter a "favorable

stage" in its capital expenditure cycle.

GBIA's shares were down 0.32 pct at 12.58 yuan this morning in Shanghai.

In a research note, Morgan Stanley said that three years after the completion of the new Baiyun airport, GBIA is entering an interval in major capital expenditure that allows for steady traffic growth and margin improvement.

The brokerage also said that a robust local economy in Guangzhou, a favorable regulatory regime, and China's aggressive aircraft acquisitions provide a solid base to extend long-term value creation.

The company's new chief executive is also likely to take measures to cut mounting operating costs, which, along with a cut in tax rate to 25 pct from 33 pct, will improve GBIA's earning power, Morgan Stanley said.

It added that major downside risks include deterioration in cost control, slower-than-expected air traffic, rescission of the airport construction fee by China's aviation regulator, and imprudent capital expenditure.


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