Delivery of 7 aircraft in 3Q24, reducing financing costs

Bank of China Aviation Leasing (BOCA) disclosed 3Q24 operating data on October 10. At the end of 3Q24, the number of aircraft owned by the company increased slightly to 430 (2Q24:429), and the number of aircraft delivered was 7. There is still a gap compared to the 37 aircraft delivered in the second half of the year in the interim report. The company may actively seek post-purchase leaseback and financial leasing opportunities during the year to expand capital expenses. In addition, the company maintained the pace of selling aircraft, and sold 6 of its own aircraft in 3Q24. Furthermore, the utilization rate of our own aircraft remained flat month-on-month, and the age of the aircraft and the remaining rental period remained healthy. In terms of financing, the company issued a seven-year 0.5 billion dollar bond with an annual interest rate of 4.625% in the third quarter, which is lower than the financing cost of more than 5% in the first half of the year, reflecting BOCA's ability to finance. The Boeing workers' strike in September once again increased the pressure on the aircraft supply chain. The less-than-demand situation will further boost aircraft rents and values, but it will also drag down aircraft deliveries in the second half of the year. Based on this, we slightly lowered our 2024/25/26 net profit forecast to 0.75/0.78 billion US dollars (previous value: 0.76/0.71/0.79 billion US dollars). The expected core net profit for 24 is 0.57 billion US dollars, maintaining the target price of HKD82, based on 1.18x 2024E PB (1-1.5x PB in 2019) and USD8.97 2024E BVPS. “Buy”.

3Q24 The number of owned aircraft increased by 1

The number of aircraft owned in 3Q24 increased slightly to 430 (2Q 24:429), and the number of aircraft on the order book was 231 (2Q24:219). The number of owned aircraft increased only slightly, but the order book remained strong. 3Q24 executed a total of 70 transactions, including a commitment to buy 19 aircraft, deliver 7 aircraft, sign 35 lease commitments, and sell 6 of its own aircraft. The utilization rate of 3Q24's own aircraft was stable at 99% (2Q 24:99%), the average age of the fleet was 5.0 years (2Q24:4.9 years), and the average remaining lease period was 7.8 years (2Q 24:7.9 years). 3Q24 BOCA's owned and managed fleet serves 93 airlines in 48 countries and regions, demonstrating its ability to operate globally. The Boeing workers' strike since mid-September may further increase the pressure on the upstream aircraft supply chain. At the end of 3Q24, BOCA's order book included 86 Boeing 737-8/9 and 8 Boeing 787 series, accounting for 41%. At the time of the interim report, the company plans to deliver 37 aircraft in the second half of the year. Currently, there is still a certain gap. It is expected that the company will seek financial leasing and leaseback opportunities to achieve the annual capital expenditure target of 4 billion US dollars.

The core ROE and net rental yield are expected to be roughly the same in 2024 as in 2023. According to IATA, demand for air travel continued to recover in August. The global toll passenger kilometer (RPK) increased 8.6% year on year. Among them, the international market increased 10.6% year on year, and the domestic market increased 5.6% year on year. Demand for air travel may increase the profits of downstream airlines, but upstream aircraft production capacity is still limited, and supply is less than demand or will continue to drive up aircraft rent and value. The cost of 3Q24 bond financing was further reduced, and it is expected that debt-side pressure will gradually release as the Federal Reserve cuts interest rates. However, delayed deliveries due to capacity issues may shorten the time it takes for aircraft to generate rent. The net rental yield and core ROE for 24 are expected to be roughly the same as in 23. The company's stock price is currently trading at 0.9x 24E PB and a 4.55% 24E dividend ratio. It is recommended to pay attention.

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) US dollar liquidity is tightening.