Introduction to this report:

The company's 24H1 net profit was 75.57% year-on-year, exceeding market expectations. Mainly due to the increase in financial leasing revenue and aircraft sales revenue under strong demand, and the return of aircraft impairment, debt costs are expected to continue to improve in anticipation of interest rate cuts.

Key points of investment:

Maintaining the “Overweight” rating, the target price was raised to HK$87.13, corresponding to 1.24xp/B in 2024. In the first half of 2024, the company achieved revenue of 1.174 billion US dollars, 10.65% year on year; net profit to mother was 0.46 billion US dollars, 75.57% year over year, exceeding market expectations, mainly due to the return of aircraft depreciation, increased financial lease interest income, and an increase in net aircraft sales revenue.

The company's interim dividend was $0.1988 per share, 76% year over year, and the dividend ratio remained stable at 30%.

The 2024-2026 EPS forecast was adjusted to $1.23 (1.20, 2.2%) /1.35 (1.33,1.2%) /1.45 (1.48, -1.9%), respectively. Benefiting from the improvement in debt costs brought about by the Federal Reserve's interest rate cut expectations, the target valuation was raised to an average of 1.24 xPb for comparable listed companies, corresponding to a target price of HK$87.13 per share, maintaining the “increase in holdings” rating.

Strong customer demand drove revenue growth, and combined impairment rebates drove profit improvements beyond expectations. In the first half of '24, the company's revenue was 10.65% year-on-year, with operating lease revenue of 0.928 billion US dollars, which remained stable; financial leasing revenue was 0.096 billion US dollars, or 379.5%. It is expected that due to the steady increase in air passenger traffic, insufficient deliveries of new supply-side aircraft will drive strong demand for financial leasing.

The supply of aircraft in the supply-side industry is tight, and the company bucked the trend in delivery growth. The company delivered 18 new aircraft in the first half of '24 (15 in the same period in '23) and sold 15 aircraft (3 in the same period in '23). The tight supply of aircraft drove strong demand for aircraft and the continued rise in aircraft value. In addition, in the first half of '24, the company's costs and expenses were US$0.665 billion, or -13.1% year-on-year, mainly due to the net repayment of $0.17 billion in aircraft depreciation. Revenue growth and cost improvements jointly drove the company's net profit to mother of $0.46 billion in the first half of 2024, or 75.57% year over year.

The diversification of financing channels benefits from the strengthening of expectations of the Federal Reserve's interest rate cuts, and the expected cost of capital is expected to improve further. The company's debt financing comes from unsecured notes and unsecured loan loans, and has long benefited from Bank of China Group support, excellent investment-grade corporate credit ratings (Fitch Ratings and Standard & Poor's Global Ratings are A-), and diversified debt financing channels. As of the end of June 24, the company had $4.9 billion of unwithdrawn promised unsecured loan credit, including $3.1 billion from the Bank of China Group due in December 2026. As expectations of interest rate cuts from the Federal Reserve strengthen, it is expected to drive the company's financing costs down and drive continuous improvement in profits.

Catalysts: Airline financial leasing demand continues to be strong; overseas interest rates continue to decline.

Risk warning: Air transport demand falls short of expectations; interest rate cuts fall short of expectations.