BOC Aviation reported FY19 net profit of US$ 702mn, 2%/4% above CMBIS/ consensus estimates. Mgmt. saw limited impact from COVID-19 outbreak and rising opportunities from expanding PLBs to offset delay in aircraft delivery, providing higher earnings visibility amid current airline industry headwind. With current valuation at 1.0x forward P/B and 5.5% dividend yield, we think the risk reward is attractive. We fine-tune TP to HK$ 73.50. U/G to BUY.
- FY19 results in-line. Total revenue increased 15% YoY to US$ 2.0bn, with in-line lease rental income (+10% YoY) and higher net gains from sale of aircrafts (+48% YoY). Staff costs was lower (-13% YoY) but an impairment loss from rent payments (US$ 25mn) occurred. These together sent net profit to US$ 702mn, up 13% YoY. Calc. net lease yield was 8.0% (vs. 8.0% in 1H19), down 0.3ppt YoY, while calc. avg. debt cost edged up 0.3ppt to 3.3% (vs. 3.3% in 1H19).
- COVID-19 impact to be mild. 1) Though mgmt. expects some payment deferrals from affected airlines during Mar to early Jun due to deteriorating cash flows, the impairment risks are limited as payments are secured by up to 14mths’ deposits. 2) The Company has ample available credit lines (~US$ 5bn) and room to leverage up (net gearing 2.9x at YE FY19) to guarantee its own liquidity condition in lower interest rate environment. 3) The Company sees the current situation as a good opportunity to extend PLBs (purchase and leaseback) through providing liquidity support to their customers.
- Raise earnings forecast on higher FY20E capex guidance. After including recent purchase of 42 aircrafts, the Company guided higher FY20E/FY21E capex of US$ 5.0bn/2.9bn (vs. prev. US$ 3.9bn/1.2bn) amid heightened industry uncertainty. With all scheduled delivery in FY20E fully placed, and more PLBs expected to ease the delay in deliveries caused by Boeing 737 Max grounding (mgmt. expected 4 to be delivered in 4Q20E), we believe the Company’s earnings visibility is still high. As a result, we revise up FY20E/FY21E net profit forecast by 4%/9%, to reflect expanding aircraft fleet, mixed with slightly softer lease factor and lower debt cost.
- Fine tune TP to HK$ 73.50; Upgrade to BUY post recent correction. The Company’s share price retreated over 20% in the past month, but we think the Company’s business model makes it resilient to walk through near-term industry turmoil. We set our new TP at HK$ 73.50, based on 1.3x P/B (vs. prev. 1.4x to reflect heightened industry uncertainty) and implying 27% upside. U/G to BUY.
