BOCA reported in-line FY20 earnings of US$ 510mn, down 27% YoY, mainly on impairment charges for aircrafts and deferred rentals as well as investment losses. Looking into FY21E, we think BOCA’s robust CAPEX, ample liquidity and its active participation into PLB market will lead it to better profitability in the post-pandemic recovery. We fine-tune FY21E-22E earnings forecast by 2-3% and maintain our TP unchanged at HK$ 90.0. Maintain BUY.
- FY20 results in-line. BOCA reported FY20 net profit of US$510mn (-27% YoY), in-line with profit warning. Lease rental income came in at US$ 1.8bn (+5% YoY) also in-line with our est., while interest and fee income was above expectation on higher PDP fees. On cost side, impairment losses and losses from sale of NAS shares were the main drags as expected. Impairment losses on aircraft assets was mainly charged for widebodies (US$ 97mn in 2H20) while impairment for financial assets saw a reversal of US$ 3mn in 2H20. Reported net lease yield was 7.9%, in-line. BOCA retained a payout ratio of 35% in FY20.
- Key takeaways from results briefing: 1) CAPEX plan remains robust with ample liquidity. Mgmt. guided ~US$ 4.5bn CAPEX for FY21E (vs. our prev. est. US$ 4.6bn), similar to that in FY20. Meanwhile, the Company held US$ 5.1bn cash and undrawn committed credit lines with US$ 1.8bn debt maturing within FY21E. 2) PLBs have better lease yields and could support long-term earnings. BOCA signed 77 PLBs with a total commitment of US$ 6bn in FY20 and ~50% of these aircrafts will be delivered in FY21E. All these PLBs are placed on long-term leases and being paid on time. Mgmt. sees currently PLBs provides 20%-30% higher lease yields than direct operating leases during industry downturn. We estimate net lease yield to pick up 0.2ppt YoY in FY21E to 8.1%. 3) Regarding AerCap (AER US, NR)’s acquisition of GECAS, which will form the world’s largest aircraft lessor with >2,000 owned fleet, BOCA mgmt. believe the Company is better positioned on lower funding costs and younger fleet age. Besides, at current size, BOCA is able to selectively work with airlines that have better credits, while the merged AER and GECAS have to deal with the whole market.
- Valuation. We fine tune our FY21E-22E earnings forecasts by 2-3% after the release of FY20 results. We maintain our TP at HK$ 90.0 based on unchanged 1.45x FY21E P/B and 12.5x FY21E P/E. Maintain BUY. Key risks: 1) slower-than-expected vaccine rollout or border reopening; 2) deteriorating financial position of major clients.
