Event: the company released results for the first half of 2022. In the first half of 22, the company achieved revenue of about HK $1.89 billion, an increase of 19.3% over the same period last year. The company realized a net loss of about HK $130 million, changing from profit to loss compared with the same period last year. Excluding the impact of impairment of two (Russian region) aircraft, the company's adjusted net profit in the first half of 22 was about HK $309 million, an increase of about 2.0% over the same period last year. The company paid a cash dividend of HK $110 million (HK $0.15 per share) in mid-22, the same as the same period last year, and the actual cash dividend rate in mid-22 (after adjustment) was about 36.2%.
Aviation demand has gradually recovered, and the company has returned to growth since the size of the organic team. The size of the organic team at the end of June 2022 was 136, an increase of 24 over the same period last year and 9 more than at the end of 2021, of which 49 were under financial leasing contracts (the same as at the end of 21) and 87 were operating under leasing contracts (9 more than at the end of 21). In addition, the company managed 25 aircraft at the end of June 22, the same number as at the end of 21. In the first half of 22, the company delivered 3 new aircraft to customers, completed 10 after-sale leased aircraft, and sold 2 aircraft.
The average lease yield increased, and the lease income increased significantly. The weighted average rental yield of the company in the first half of 2022 was about 12.7%, an increase of 2.2pct over the same period last year and 1.1 pct over the whole of 2021; of which the average rate of return on financial leases was 13.2%, an increase of 0.5 pct over the same period last year; and the average rate of return on operating leases was 12.6%, an increase of 1.7pct over the same period last year. The main reason for the increase in the weighted average rental yield is that the company has implemented the after-sale lease of a total of 22 old aircraft, resulting in a higher rental yield.
As a result, the company achieved rental revenue of about HK $1.65 billion in the first half of 2022, an increase of 43 per cent over the same period last year.
Net income from aircraft trading fell sharply. Affected by the epidemic, the company delayed the progress of its aircraft trading project in the first half of 2022, selling only two aircraft, down from the same period last year (selling four aircraft). As a result, the company's net income from aircraft transactions in the first half of 2022 was about HK $66 million, down 63 per cent from a year earlier. The company will accelerate the landing of the aircraft trading project in the second half of 2022 and is expected to sell about 10 aircraft.
The conflict between Russia and Ukraine caused the company to calculate the impairment of aircraft. The company's operating expenses increased by about 38% in the first half of 2022 compared with the same period last year, of which interest expenses increased by 31% compared with the same period last year, mainly due to the rise of 3M Company's LIBOR (from 0.24% at the beginning of 2021 to 2.29% at the end of June 2022). The company's average real interest rate on bank and other loans in the first half of 22 was 3.45%, an increase of 0.78pct over the same period last year. Depreciation expenses increased by 57% year-on-year, mainly due to the increase in the number of operating leased aircraft from 55 at the end of June 21 to 87 at the end of June 22. Taken together, the company's operating profit in the first half of 22 was HK $350 million, down 35 per cent from the same period last year (after adding foreign exchange hedging gains). In addition, taking into account the impact of the impairment of two aircraft (HK $440 million), the company's pre-tax profit in the first half of 22 was about HK $30 million, down about 93 per cent from the same period last year.
Investment advice: global aviation demand gradually recovers, the size of the company's self-organic team will return to growth; the company's business strategy is sound, the number of Russian customer fleet is only 2%, accounting for less than 2% of the self-organic team, although the asset impairment is included, but it will not have a significant impact on the company's future cash flow. Taking into account the impairment of one-time assets and the increase in financing interest rates, we lowered the company's 22-24 return net profit forecast of 49.9%, 5.3% and 4.3% to HK $340 million, 760 million and 880 million respectively, maintaining the company's "overweight" rating.
Risk tips: the economic downturn and the longer-than-expected duration of the epidemic led to a decline in aviation demand; a drop in the prices of new and second-hand aircraft; a rise in corporate financing costs; and changes in legal and accounting policies led to an increase in the effective tax rate of companies.
