Summary. 1H19 lease rental income increased 10.5% YoY to US$ 832mn. Net profit increased 8.1% YoY to US$ 321mn. Despite delivery delays from Boeing and Airbus, we believe the Company will achieve target 2019E capital expenditure of US$ 3bn to US$ 3.5bn, by PLB and other transactions. We cut 2019E lease rental income by 0.7% to US$ 1,718mn. Also, we factor in rising finance expenses and trim 2019E net profit by 2.3% to US$ 688mn. The Company is trading at 1.3x 2019E P/B ratio, higher than its 5-year historical average of 1.2x. Our TP corresponds to 1.4x 2019E P/B ratio, maintain HOLD.
- 1H19 results inline. The Company announced 1H19 results. Lease rental income increased 10.5% YoY to US$ 832mn, representing 48% of our full-year estimate. Finance expenses increased 31.1% YoY to US$ 213mn, due to the combined effect of increase in total indebtedness and increase in average cost of debt from 3.1% in 1H18 to 3.6% in 1H19. Net lease yield remained stable at 8.4%, in line with our full-year estimate of 8.4%. Net profit increased 8.1% YoY to US$ 321mn, representing 46% of our full-year estimate, and 3% below consensus of US$ 331mn. The Company announced interim dividend of US$0.1388 per share, payout ratio remained at 30%.
- Delivery delays from not only Boeing, but also Airbus. The Company took delivery of 25 aircraft in 1H19, bringing total number of owned aircraft to 314, from 303 as of YE18. 18 aircraft scheduled for delivery in 1H19 were delayed, comprising 12 Airbus aircraft delayed primarily due to industrial constraints, and six Boeing aircraft delayed primarily due to the 737 MAX grounding. The Company adjusted 2019E deliveries guidance from 79 down to 74, and warned that deliveries in 2019 is likely to be lower than 74, and up to 30 aircraft could be delayed out of 2019.
- Replacing delayed Capex by PLB transactions. The Company has been focusing on replacing the capital expenditure represented by the delayed aircraft by PLB and other transactions. Since 30 Jun 2019, it has already announced purchase and leaseback transactions for three A350 aircraft for delivery in 2019. 1H19 actual capital expenditure was US$ 1.5bn, and capex guidance for 2H19 is US$ 2.6bn. Management expected capital expenditure for the whole year to range between US$ 3bn and US$ 3.5bn.
- Positive 2H19 outlook. Management showed professionalism in tackling industry headwinds. We believe the Company will achieve target 2019E capital expenditure. We adjust 2019/20E lease rental income -0.7%/0.4% to US$ 1,718/1,987mn. Also, we factor in rising finance expenses and adjust 2019/20E net profit -2.3%/0.7% to US$ 688/773mn. The Company is trading at 1.3x 2019E P/B ratio, higher than its 5-year historical average of 1.2x. Our TP corresponds to 1.4x 2019E P/B ratio, maintain HOLD.
