Incident: Bank of China Aviation Leasing announced its 2024 mid-year report. During the reporting period, the company achieved total operating income and other revenue of 1.174 billion US dollars, +10.7% year on year; realized net profit after tax of 0.46 billion US dollars, +72.4% year on year, of which core net profit after tax (excluding recovery payments from delayed Russian aircraft) was 0.284 billion US dollars, +8.4% year over year. The company plans to pay an interim dividend of $0.1988 per share, with a dividend ratio of 30%.

Rental yield from operating leases remained high, and financial leasing revenue increased dramatically. The company's operating lease rental income, financial lease interest income, other interest and handling fee income, net proceeds from aircraft sales, and other revenue were 9.28, 0.96, 0.036, 0.056, and 0.058 billion US dollars, respectively, during the reporting period, -1.3%, +379.5%, -10.3%, +300.7%, and +25.6%, respectively. In terms of operating leasing, the gap between supply and demand kept the rental yield high. The rental yield during the reporting period was 9.8%, which was the same as the previous year. In terms of financial leasing, the sharp rise in volume and price has driven a rapid increase in interest income from financial leasing. In the report, the number of financial leasing aircraft increased by 47 to 59, and the yield on financial leasing rental was +1.0pct to 7.2% year over year.

Aircraft depreciation is the main cause of cost reduction, and financial expenses are the main drag. The company's costs and expenses during the reporting period were USD 0.765 billion, -13.1% YoY. The reduction in costs and expenses was mainly due to aircraft depreciation. During the reporting period, the company took back 2 aircraft that were stuck in Russia, and the aircraft depreciated 0.17 billion US dollars, compared to 0.003 billion US dollars for aircraft depreciation in the same period last year. Financial expenses were the main drag. The annual interest rate on debt was +0.5pct to 4.6% year over year during the reporting period, driving financial expenses +20.6% year over year to 0.358 billion US dollars.

The fleet continues to be optimized to ensure sufficient capacity. At the end of the reporting period, the fleet comprised 680 owned, managed and ordered aircraft, of which 429 were owned; the average age after net account weighted was 4.9 years, and the average remaining lease period was 7.9 years. The company promised to purchase 14 more aircraft, bringing the total number of orders to 219. Delivery is scheduled until the end of 2029, and all aircraft scheduled to be delivered by December 2025 have been identified to airline customers.

Investment advice: We believe that the gap between aviation supply and demand will keep rental rates high. The start of an overseas interest rate cut cycle is expected to ease financial expenses and be optimistic about the sustainability of the company's performance. The company's revenue for 2024-2026 is expected to be +6.85%, +7.77%, and +7.95% year-on-year, net profit to mother +9.79%, +9.42%, and +11.21%, respectively. EPS is 1.21, 1.32, and 1.47 US dollars/share, respectively. The PE corresponding to the closing price on August 22 is 7.22, 6.60, and 5.93 times. Maintain a “buy” rating.

Risk warning: the recovery in aviation demand falls short of expectations, overseas interest rate cuts fall short of expectations, and a sharp increase in charters' defaults