Core views:

The company announced semi-annual results for 2024: total operating revenue and other revenue for the first half of the year was 1.174 billion US dollars, up 11% year on year, and net profit was 0.46 billion US dollars, up 76% from 0.262 billion US dollars in the first half of 2023. Excluding impairment effects, core net profit increased 10% year over year.

Asset side: Financial leasing expansion+aircraft sales contribute to revenue elasticity. (1) Delivery performance was weak due to supply shortages. 24H1 delivered 18 new aircraft (23H1 was 16), and the utilization rate of its own aircraft was 99%. Of the 18 aircraft, 6 are recorded as operating lease assets and 12 are recorded as financial lease assets. (2) Operating lease: Operating lease revenue yoy -1.3%, accounting for nearly 80% of total operating income. The decline in rental income was mainly due to the fact that the number of aircraft sold was greater than the number of aircraft introduced in operating leases. 24H1 sold 15 aircraft (3 in the same period last year), and the operating leased aircraft asset balance was 18.749 billion US dollars, down 2% from the end of '23. The 24H1 operating lease rate is 9.8%, which is consistent with the first half of 2023. The average age of aircraft sold by the company was 10 years, and the yield on aircraft rental in 13-14 was high. The sale of these assets may structurally reduce the yield, and only 6 new operating leased aircraft were added in the first half of the year, accounting for a relatively small share. (3) Financial leasing: As of '24 H1, financial lease receivables were $3 billion, an increase of 87% over $0.87 billion in 23H1. As a result, interest income has increased dramatically, contributing to revenue side elasticity.

Debt side: The company's COF continues to grow, and interest rate cuts are expected to release profit elasticity. 24H1's financial expenses were $0.358 billion, up 20.6% from 23H1's $0.296 billion, and the annual interest rate rose from 3.9% of 23H1 to 4.6% of 24H1. As expectations of the Federal Reserve's interest rate cut expand, the company's debt burden is expected to decline, contributing to profit elasticity. This round of results is still clearly being dragged down by the debt side.

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 0.84 billion US dollars in '25.

Based on a 24-year bvps of $9.1, a reasonable valuation of 1.2xpb, corresponding to a reasonable value of HK$85 per share (based on $1 = HK$7.83), a “buy” rating is given.

Risk warning: US economic downturn, geopolitical issues, aircraft safety incidents, etc.