Forbes recently wrote about the Cancun International Airport and its owner Grupo Aeroportuario Del Sureste (NYSE: ASR),calling the company “a great investment opportunity.” Why? In part because of the new Dragon Mart Cancun,which is currently under construction to the tune of a $1.5 billion investment by Chinamex,and is scheduled to open later this year.
When Dragon Mart opens it will have a huge impact on the local economy,including Cancun real estate,and is also expected to help make ASR a great investment. The company already has contracts to operate the Cancun International Airport,in addition to eight other airports throughout Mexico,for the next 36 years,virtually guaranteeing continued profits for ASR.
“Once the international traveler checks their bags,they often have three hours to kill before getting on their plane,” shared Randy McDuff,who is one of the world’s most successful investors and was featured last year in the book The Warren Buffets Next Door. “The airport gets a piece of each and every dollar spent.”
Even without the new Dragon Mart,airports are often some of the most profitable businesses in existence,in part because they can charge parking fees,taxi and bus fees,and departure fees. Add to this the fact that competition is prevented from operating in the same territory by the government,and it’s easy to see how airports remain in the black.
According to the article,the new Cancun Dragon Mart is the single largest capital investment ever undertaken in the Mexican state of Quintana Roo.
“When the Dragon Mart Cancun opens,the number of people going through the Cancun Airport should grow and that’s what will make ASR more valuable,” wrote Forbes contributor Ken Kam.
ASR served more than 17.5 million passengers in 2011 and has a value of around $2.32 billion,but is largely believed to be grossly undervalued.
“In 2011,Cancun International operating income rose by 19.7 percent on a 4.7 percent increase in passenger traffic,” stated McDuff. “In the first quarter of 2012,Cancun International traffic increased 9.6 percent year-on-year. Since the Dragon Mart Cancun project is literally 10 times bigger than most English speaking analysts believe,cash flow and earnings could easily surprise to the upside.”