Earnings Report /

ASUR: Quarterly Report 3Q21: Revenues and EBITDA above pre-pandemic levels

  • Strong year-over-year growth, reflecting good passenger dynamism, as well as a significant expansion in margins

  • In 3Q21, Asur’s operating revenues and EBITDA already exceeded pre-pandemic figures

  • We set our PT at MXN 483.50, which is equivalent to a FV/EBITDA 2022e multiple of 13.1x, similar to our 2021e of 13.5x

Jose Itzamna Espitia Hernandez
Jose Itzamna Espitia Hernandez

Senior Equity Research Analyst, Infrastructure, Materials and Transportation

27 October 2021
Published byBanorte
  • Asur's results showed strong year-over-year growth, slightly above expectations, reflecting good passenger dynamism, as well as a significant expansion in margins

  • In 3Q21, operating revenues and EBITDA already exceeded pre-pandemic figures. Meanwhile, solid demand performance underpins the positive outlook for Asur

  • We set our PT at MXN 483.50, which is equivalent to a FV/EBITDA 2022e multiple of 13.1x, similar to our 2021e of 13.5x. Our rating is Buy

Relevant growth and higher profitability. Asur recorded significant advance (at more moderate rates on a more normalized basis), due to the favorable traffic performance, despite the spike in contagions, as well as higher maximum rates. Thus, total passengers increased 231.2% y/y, while operating revenues (sum of aeronautical and non-aeronautical) rose 154.1% y/y to MXN 4.304 billion, in line with expectations. On the other hand, higher operating leverage and extraordinary benefit in Puerto Rico (MXN 165 million vs. MXN 113 million in 3Q20), led EBITDA to grow by 285.8% y/y to MXN 2.913 billion, with an EBITDA margin expansion (excluding construction services) of 23.1pp to 67.7%, better than expected. Finally, the company reported a majority net income of MXN 1.794 billion (vs. MXN 105 million in 3Q20), derived from improved operating performance. Incorporating the results, the FV/EBITDA multiple decreased from 21.5x to 15.7x. It is worth noting that the recovery in passengers is very close to 2019 levels (-1.4% vs. 3Q19), while it already surpassed them in operating revenues by 11.3% and EBITDA by 17.7%. Consequently, the expectation of solid progress with strategies to boost growth and profitability, together with the healthy financial balance (ND/EBITDA of 0.4x), position Asur as one of the most favored by the recovery.

Asur's passenger performance has surprised favorably. From our point of view, considering the greater exposure to international traffic (in Mexico it represented 47.5% YTD, and in consolidated international passengers accounted for 32.9% of the total), compared to its domestic peers, the group has interesting growth prospects that could become more favorable as the vaccination process continues and restrictions on travelers decrease, thus boosting international tourism. In this sense, we foresee that the recovery in passengers (which so far in 2021 has exceeded expectations) vs. pre-pandemic levels will continue to materialize, highlighting that in September it already surpassed 2019 figures.

Meanwhile, the company remains focused on implementing strategies to drive growth. In order to continue to leverage the sector's recovery, we believe Asur will continue to direct its efforts to drive growth through its solid business strategy, which among other things, includes promoting route development, seeking to maximize aeronautical revenues and boosting non-aeronautical income ─through its successful commercial strategy─, in addition to having a diversified airline base, which reduces risks and exposure to any particular participant. It is important to note that this will be supported by the group's continued solid financial position, with a ND/EBITDA ratio of 0.4x as of 3Q21.

Estimates 2021 and 2022

Solid recovery drives growth in 2021. We forecast Asur's passenger traffic to register a strong 89.0% increase in 2021, taking into account that the good performance would continue into year-end, thus representing 86.9% of the 2019 figure. By country, we project the following increases in passengers: Mexico +72.4%, Puerto Rico +103.9% (exceeding pre-pandemic levels) and Colombia +136.9% (the most affected in 2020). Thus, considering the new maximum rates and investments, we expect aeronautical revenues to rise 68.9%, and those non-aeronautical to increase 71.8%. As a result, total income (incorporating aeronautical, non-aeronautical and construction) would rise 38.7% to MXN 17.514 billion, while operating revenues (sum of aeronautical and non-aeronautical revenues) would grow 70.1% to MXN 15.221 billion (-0.7% vs. 2019).

We expect Asur's EBITDA to show a year-on-year increase of 100.1% to MXN 9.768 billion (-5.3% vs. 2019), and consequently, higher profitability, with EBITDA margin (excluding construction services) at 64.1%, +9.6pp vs. 2020. This would be due to higher operating leverage from higher revenues and a cost and expense structure that is mostly fixed, additional to the company's savings initiatives.

On the other hand, majority net income would increase 168.7% to MXN 5.3 billion, mainly due to higher operating income. It should be noted that, with the progress in results, the ND/EBITDA ratio would fall to 0.3x vs. 1.8x in 2020, reflecting a solid financial balance.

2022 would exceed pre-pandemic levels. We believe that an improved performance in international passengers, coupled with a recovery in domestic passengers, should support growth for Asur in 2022, bringing its figures above pre-pandemic levels. This would result mainly from improved demand with fewer traveler restrictions, a larger airline fleet, and continued economic growth. In that sense, we estimate an increase in the company's total passenger traffic of 17.6%, which includes an increase in Mexico´s passengers of 19.1%, in Puerto Rico of 11.6%, and in Colombia of 19.1%.

It is important to mention that our projections indicate that Asur could reach, even exceed, the same number of passengers with which it closed 2019 as soon as the end of 2022, due to a more than expected accelerated dynamism in demand, as we show in the graph on the right on the following page.

We expect total revenue growth of 14.3% to MXN 20.021 billion and a significant advance in operating income of 19.5% to MXN 18.228 billion (+18.7% vs. 2019), mainly due to an increase in passengers and higher rates, as well as a depreciation of the Mexican peso against the US dollar, partially offset by an appreciation of the peso vs. the Colombian currency. Thus, aeronautical revenues would increase 19.0% and non-aeronautical income would increase 20.2%.

At the operating level, we anticipate EBITDA to advance 23.2% to MXN 12.032 billion (+16.6% vs. 2019), with EBITDA margin (excluding construction services) up 2.0pp to 66.0%, derived from greater economies of scale when considering that the cost structure is mostly fixed, thus benefiting from higher passenger traffic volume. Additionally, the group would continue to focus on achieving greater operating efficiencies to drive profitability. We anticipate low-single-digit margin gains in the 3 countries.

We estimate majority net income growth of 15.3% to MXN 6.11 billion, mainly driven by operating performance. In our projections, we foresee a dividend payment of MXN 8.70 per share, a yield of 2.2%e at current prices, and in relation to leverage, we expect the ND/EBITDA ratio to be at 0.3x, confirming the healthy financial situation.

It is important to mention that our expectations will largely depend on the evolution of demand (which could be sensitive to the rebound of contagions and/or restrictions in other countries) and also on the growth of the economies where Asur operates. On the other hand, oil prices should be monitored due to their recent rise, which could impact the airlines' main expense, which is turbosine. Although we foresee that airlines will continue to grow their operations, they could do so to a lesser extent, which would affect passenger transportation to a certain measure.

Valuation and PT of MXN 483.50. Our rating is BUY

To establish Asur's target price, we used a discounted cash flow (DCF) valuation methodology. With this, the target price obtained is MXN 483.50 per share, which is equivalent to a FV/EBITDA 2022e multiple of 13.1x, similar to our 2021e of 13.5x. It is worth mentioning that the target multiple is above the domestic sector average of 10.8x, although historically the company has been characterized by trading above the average of its domestic peers, which we believe stems from the company's entry into new markets, thus diversifying its operations. On the other hand, the more accelerated recovery in 2021 and the solid growth prospects expected for 2022 (which would benefit from greater potential dynamism in international tourism), should be reflected in an interesting reduction in multiples. Additionally, we highlight the solid business model, the improvement at the operating level, supported by savings initiatives and operating efficiencies, which would translate into higher profitability, as well as the continued dividend payment, reflecting the attractive cash generation and financial balance. Based on the above and potential PT return of 23.8% (including the estimated dividend yield), we recommend Buy.

In the DCF model, our assumptions incorporate a discount rate (WACC) of 13.7%; Average cost of debt of 6.8%; Beta of 1.2; Risk free rate of 7.8% (year-end 10-year M-bond estimate by our Fixed Income area), a market risk premium of 6.0% and a terminal FV/EBITDA multiple of 14.5x for the perpetuity value, below the 5-year pre-pandemic average of 15.0x, although above the 2022e sector average of 12.0x, supported by the company's higher profitability.