Core views:

On August 5, 2024, the company issued a positive profit forecast. The announcement showed that the company's net profit growth rate for the first half of 2024 was 70-80% year-on-year, mainly due to the incremental impact of the two aircraft taken back from Russia in early March 2024.

Reviewing Russian insurance payments in 2023, first, the 2022 Russian-Ukrainian conflict brought the company a net loss of 0.507 billion US dollars. In November 2023, Russian insurance companies paid 0.208 billion dollars for 8 aircraft stranded in Russia, and by the end of 2023, Russian insurance companies had paid 0.258 billion dollars for 11 aircraft.

In addition to Russian insurance payments, the company's business-level performance in the first half of 2024 is also expected to increase year over year:

(1) Aircraft sales volume: The company sold 15 aircraft of its own in 2024H1, and sold only 3 aircraft during the same period in 2023. As of 24H1, AERCAP\ AIRLEASE sold a total of 64 and 16 aircraft. Sales also increased in the same period last year. To a certain extent, the decline in Boeing deliveries accelerated the airline's move to buy aircraft from aircraft leasing companies. At the same time, the increase in aircraft sales volume is expected to drive up net sales.

(2) Increase in lease receivables: The company's leases receivable were 0.87 and 2.5 billion US dollars at the end of the first half of 2023, respectively. The increase was significant, so the financial lease interest income base for the first half of 2023 was low.

(3) Incremental assets: The company delivered a total of 18 aircraft in 2024H1, while 2023H1 delivered 16 aircraft during the same period. The increase in the number of deliveries is more conducive to securing leases at a high level.

Profit forecasting and investment advice. After deducting the impact of Russian insurance claims, the 25-year core net profit is expected to increase its growth rate against the backdrop of interest rate cuts and falling costs. Net profit is expected to be 0.82 billion US dollars in '25.

The company's PB center was 1.1 x in the past 5 years, and the PB center cut interest rates by 1.5x in the second half of '19. Expectations were raised appropriately. Based on BVPS of $9.1 in 24, a reasonable valuation of 1.2 xpb, corresponding to a reasonable value of HK$85 per share (according to USD 1 = HK$7.83), a “buy” rating was given.

Risk warning. Overseas economic fluctuations, geopolitics, and Boeing security issues.