BOCA’s 1H20 net profit was up 0.7% YoY to US$ 323mn, weaker than market expectation (accounting for 46% of FY20E consensus est.), as robust top-line growth (+11% YoY) was dragged by impairment on lease receivables and aircrafts (~ 6% of revenue). Interim payout ratio remained at 30%. We revise down earnings forecast by avg. 21% for FY20E-FY22E to factor in continued impact from COVID-19 on delivery, lease factor and rental deferrals. We then cut TP to HK$ 65.3; maintain BUY as we see the Company’s PLB-focused strategy shift could drive growth ahead to weather pandemic uncertainty.
- 1H20 strong revenue growth eroded by impairment. Total revenue was underpinned by 7% YoY growth in lease rental revenue though with a lower lease factor, as well as higher-than-expected PDP income (+15% YoY) and other income (+1x YoY). BOCA incurred surging impairment (+11x YoY) on deferred rental receivables exceeding security deposits and US$ 12mn aircraft impairment on aircrafts due to five grounded MAX that had been delivered. Reported net lease yield was 8.2%, down 0.2ppt YoY, with FY20E guidance further down towards 8.0%.
- 2H20E still challenging, but we think BOCA is in better position. On one side, BOCA maintained a robust CAPEX plan, guiding another US$ 3bn for 2H20E (vs. US$ 3bn in 1H20), and mgmt.’s strategy focus shifting to PLB (buying 71 aircrafts from 6 airline customers YTD) could better support future lease rental inflows. On the flip side, though mgmt. mentioned the industry troughed out in mid-Apr, we think the resurgence of COVID-19 in several countries has delayed a thorough global recovery, which will continue to put lease factor under pressure, and may cause further rental impairment as some airline customers’ operations deteriorate.
- Cut earnings est. by 21% on avg. for FY20E-FY22E; trim TP to HK$ 65.30; Maintain BUY. We cut earnings estimates by an avg. 21% over FY20E-FY22E and trim TP by 13% to HK$ 65.30, as we apply a lower target P/B ratio of 1.2x (vs. prev. 1.3x) to reflect extending pandemic uncertainty. BOCA now trades at 0.87x 1-year forward P/B, lower than its historical average of 0.98x. We maintain long-term positive stance on BOCA, and current 4.8% FY20E dividend yield should provide it with limited downside.
