Ann: July 2017 - Monthly Traffic Update, page-16

If we look at it from a relative valuation perspective, AIA is currently trading at a Trailing-Twelve-Month EV/EBITDAFI (excluding property revals) of 18.90, while its most direct comparable SYD is trading at a TTM EV/EBITDA of 22.10.

The spread between long-term AUD and NZD government bond yields (20 basis points, as we speak) does not justify that valuation gap, and from a purely fundamental perspective AIA’s market position is unchallenged (for the foreseeable future) by the construction of a second airport, unlike SYD.

So, even from that perspective, the valuation gap looks unjustified to me.

If we were to value AIA at the same EV/EBITDA (excluding financial items) as SYD is currently trading, the implied AIA share price is 7.10A$, 22.4% above the current SP.

And I am by no means suggesting that SYD is currently overvalued, on an absolute basis.

IMHO & DYOR

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** SORRY, ERRATUM ABOVE ** Omitted to convert some items in the calculation by the FX rate

Here are the correct figures:

AIA TTM EV/EBITDAFI: 20.40
Implied AIA SP at a 22.10 EV/EBITDAFI (as for SYD) = 6.42A$
Upside to implied SP = 10.7%

But, again, I am not taking that implied SP as being a reflection of "fair value".

Cheers

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As a curiosity, AIA has now closed its valuation gap with SYD: at today’s price I see both trading at a TTM EV/EBITDA of 21.25.

For a number of reasons (freehold of land, no change in forecast tax rate, no building of second airport), I do think AIA should trade at a premium to SYD, though.

Still looking like very good value to me.

IMHO & DYOR