AIA vs SYD valuation, page-5

"I assume you have come to the conclusion AIA is better value than SYD, even though SYD has had a larger % decline in market cap in the last few weeks. I have just been following/buying SYD and haven't looked as closely as I should have at AIA. What do you see as the odds of a capital raising at SYD or AIA?"

@andy777,

Apologies for the tardy response; I've been away from my desk for a while.

I don't have a firm view of SYD vs AIA, expect for one of the points you raised, that being the one has more than 4 times more debt than the other one, yet its earnings are only twice as large. Net Debt-to-EBITDA for SYD is over 8x, while for AIA its a more manageable 3.9x.

But that superficial comparison also masks the important point of the actual nature of the debt in each case: in AIA's it is secured against the significant investment property portfolio ($1.8bn worth); in SYD's case it is far more pure corporate debt/

But really, that these companies are called "airport operators" is a bit of a misnomer; what they really are are monopoly landlords. Activity from things that have directly to do with aeroplanes represents around half of SYD's revenues and just 40% of AIA's revenues.

And another point of difference is that AIA's idle land bank, which can still be commercialised for many years to come, is many times larger than SYD's.

AIA doubled its earnings from "non-airport" activities (retail, rental from commercial real estate, parking) in the past decade, and I can envisage AIA easily doing so again over the coming decade. I can't say the same for SYD given it doesn't have the same sort of geographical footprint.

AIA is really a property developer, with the unique feature of it enjoying monopoly command over those properties by dint of them being next to a place - which AIA also owns - where almost all the aeroplanes entering NZ land.