The impact of the recall of the aircraft was higher than expected. 1H24 net lease yield was 7%, and 1H24, BOC Aviation Leasing's net profit was 0.46 billion US dollars, and core net profit was 0.284 billion US dollars. The net profit growth rate of 76% to the mother was in the middle of the range given in the previous profit forecast (70%-80%), and the impact of recycling the two aircraft on profit reached $0.176 billion, higher than our previous forecast of 0.1 billion dollars.

Delayed deliveries due to 1H24 supply chain pressures are dragging down fleet expansion and impeding rental rate growth.

1H24 capital costs rose to 4.6%, but we expect the Federal Reserve's possible interest rate cuts in the second half of the year to ease the pressure on the company's capital costs. The net rental yield remained flat at 7% year over year. In the future, along with delays in aircraft deliveries, reduced pressure on capital costs, and continued capital investment, we expect the net rental yield for the full year of 2024 to be no lower than in 2023. Taking into account the impact of delayed delivery, we lowered our forecast for 2024/2025/2026 net profit to $0.76/0.71/0.79 billion (previous value: $0.81/0.75/$0.83 billion).

Core net profit for 2012 was $0.584 billion, maintaining a target price of HKD82, based on 1.18x 2024E PB (1-1.5x PB in 2019) and 2024E BVPS of $8.98, maintaining a “buy” rating.

The net rental yield in 2024 is not expected to be lower than in 2023

The net rental yield for 1H24 is 7.0% (1H23:7.0%), and the operating lease rate is 9.8% (1H23:

9.8%), the net rental yield/rental rate for the full year of 2023 is 7.1/ 10%, implying that the net rental yield and rental rate of 1H24 may be lower than 2H23. We think this may be due to delayed delivery dragging down rental rates, as well as rising capital costs. 1H24 capital costs rose to 4.6% (1H23:

3.9%). 1H24 delivered 18 aircraft, sold 15 aircraft, and signed 55 lease commitments, rising slightly from fleet size to 429 (1Q 24:427), with an average remaining lease period of 7.9 years and an average age of 4.9 years. The contribution of financial leasing increased. 1H24 rental revenue increased 380% year over year, and leasing rate rose to 7.2% (1H23:6.2%). In the future, with the delivery of new aircraft with higher lease rates and the release of some of the pressure of high global interest rates, we think the net rental yield in 2024 may not be lower than in 2023.

The fleet may be expanded through post-purchase leaseback and financial leasing

Airline business conditions have improved. According to IATA, the global RPK increased 13.4% year-on-year from January to June 2024, and the net profit of the global aviation industry is expected to reach USD31bn in 2024. However, production capacity of upstream aircraft manufacturers is still limited, continuing to drive up leasing rates and aircraft values. We expect 2H24 will continue to maintain the pace of aircraft sales and seize the cyclical opportunities of increasing aircraft value. We expect that in the second half of the year, the company may expand its fleet through post-purchase leaseback and financial leasing. 1H24 capital expenditure is USD0.8bn, and the promised capital expenditure is USD1.9bn. There is still a gap with the capital expenditure target of USD4.0bn for the whole year. Under current production capacity restrictions, the company may expand its fleet through financial leasing and post-purchase leaseback. 1H24 announced a dividend of USD 0.1988 per share, up 76% year on year. The stock price is currently trading at 0.99x 2024E PB, with 4.1% 2024E dividend rate, which has allocation value.

Risk warning: 1) the aviation industry is recovering slowly; 2) the cost of debt financing is rising rapidly; 3) aircraft supply continues to be disrupted; 4) the economy is declining; 5) dollar liquidity is tightening.