Earnings are expected to grow by 55% in 2021 compared with the same period last year.
China aircraft Leasing released profit forecast for 2021: net profit in 2021 is expected to increase by about 55 per cent year-on-year to about HK $520 million, and we expect non-operating floating losses to ease or be the main cause of performance growth; 2H21 net profit fell 29 per cent month-on-month to about HK $220 million, which may be mainly due to a reduction in aircraft trading revenue.
Pay attention to the main points
The scale of the fleet has expanded steadily, and the structure of the aircraft has effectively resisted the impact of the epidemic. As of December 8, 2021, the company had a fleet of 150 aircraft, up from 22 at the beginning of the year (21 in the second half of the year), according to the company's website. Thanks to the company's fleet structure of domestic customers and narrow-body aircraft (as of 1H21, narrow-body aircraft accounted for 89% and 78% were leased from the organic team to the mainland Aviation Department), the company has better resisted the higher-than-expected spread of the global epidemic caused by the mutation of the virus strain. As of 1H21, the aircraft occupancy rate is 100% and the rent recovery rate is 99.7%, which is better than that of the industry, while the suspension rate of 8M21 is 11%, which is the best in the industry (according to Cirium data). For the whole year, we expect the company's main business to be overall sound, with core rental income slightly down 6 per cent year-on-year to HK $2.34 billion.
Non-operating floating losses decreased significantly compared with the same period last year, leading to obvious performance repair. 1) in 2020, the company incurred a non-operating loss of HK $510 million due to investment losses, exchange losses, etc., resulting in a year-on-year net profit of-62.7% (vs. Operating profit compared with the same period last year-2.0%). Since 2021, the company has continuously improved interest rate / exchange rate risk hedging. As of 1H21, only 6 of the 104 aircraft in the organic team have not hedged interest rates, and only 500 million RMB debt has not been hedged in exchange rates (the company estimates that the exchange rate changes by 5%, resulting in a profit change of ~ 3000 million Hong Kong dollars). We expect the negative impact of non-recurring items to be significantly alleviated in 2021, leading to significant performance repair. 2) in terms of impairment, 1H21 has increased the impairment of receivables of HK $45.7 million, and the cumulative impairment of operating lease receivables is 23%. We expect the proportion of impairment to remain stable throughout the year.
Reiterate that it is optimistic about the repair opportunities in the post-epidemic era of the aircraft leasing industry, and the company's whole industry chain model is expected to harvest incremental business opportunities. At the industry level, 55% of 12M21's global Omicron has been repaired to 55% of the same period in 2019, with a peak of + 79.5% compared with the same period last year, positive progress in vaccination and oral drug research and development, further opening of international borders, and gradual normalization of international and domestic epidemic policies. We reiterate that in the post-epidemic era, the aircraft leasing industry has ushered in three major cycles of gradual repair of demand, limited supply constraints, and relatively low cost of capital. The orderly expansion of the fleet of leading leasing companies and the mitigation of lease impairment have led their performance and valuation into an improvement cycle. In addition, with the accelerated decommissioning of old aircraft and the increased demand for aircraft disassembly / disposal after the epidemic, we are optimistic that the company will capture incremental business opportunities with the fleet management and asset disposal capabilities of the whole industry chain.
Valuation and suggestion
Due to the repeated global epidemic, the decline in the price and quantity of the company's aircraft trading dragged down the aircraft trading revenue. We reduced the 22-year profit by 31% to HK $520 million / HK $670 million, and introduced a 23-year profit of HK $860 million. The company traded at 0.9x Pmax B in 22, taking into account post-epidemic industry repair opportunities and maintaining an outperform industry and target price of HK $7.5 (2022 1.2x Pmax B and 34% upside).
Risk
The epidemic has repeatedly exceeded expectations; demand repair is not as expected; aircraft trading is not as expected; asset quality is uncertain.