Equity Analysis /
Saudi Arabia

Saudi Arabia: Lower airport charges, positive for tourism sector

  • According to Bloomberg, GACA announced its plans to reduce airport charges by 35% this year

  • The airports included are the major 3 airports in Saudi (Riyadh, Jeddah and Dammam), which have c75-85% of traffic

  • We believe the reduction in charges will be positive for the tourism sector mainly for SGS and Catering

Iyad Khalid Ghulam
Iyad Khalid Ghulam

Head of Equity Research

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SNB Capital
21 July 2022
Published bySNB Capital

Summary:

According to Bloomberg, GACA will reduce airport charges by 35% on major airports (Riyadh, Jeddah and Dammam) starting this year. Airports have the flexibility to reduce the rates further, which we believe can drive growth. We believe the reduction in rates will increase the competitiveness of Saudi airports and will lead to higher traffic, supporting the growth prospects of Tourism stocks such as SGS, Catering and Seera.

Key points:

  • According to Bloomberg, GACA announced to reduce airport charges by 35% this year. This announcement was made during Farnborough Air Show. Furthermore, airports were provided with the flexibility to reduce the rates further.

  • In-line with Civil Aviation Strategy announced in December 2020, GACA aims to increase the competitiveness of Saudi airports and make them a global hub.

  • The airports included are the major 3 airports in Saudi (Riyadh, Jeddah and Dammam), which have c75-85% of flights traffic.

  • Based on our estimates, the airport charges related to passengers are cSAR300/passenger for international flights and cSAR75/passenger for domestic flights. The reduction may potentially reduce ticket prices and encourage different airlines to use Saudi airports.

  • We believe the reduction in charges will be positive for the tourism sector in general. For covered stocks, we believe SGS will be the main beneficiary from increasing flights, followed by Catering as meal demand might increase with growth in long-haul flights.

  • Based on our latest updates published in Q2 22, we are overweight on SGS with a PT of SAR39.5 We believe SGS is well-positioned to record a strong recovery driven by 1) the positive outlook of the Saudi Aviation and Tourism sectors, 2) the pick-up in religious tourism, and 3) SGS’s strong cost control measures. The stock is trading at 2023f P/E of 16.9x (vs peers average of 20x). We are Neural on Catering with a PT of SAR93.2. The increase in the number of pilgrims and Catering’s strategy of revenue diversification and cost control are the stock's key drivers. Catering is trading at 2023f P/E of 15.9x (vs peers average of 16.7x).