BOC AVIATION(2588.HK)：ACHIEVED BEST FIRST QUARTER PERFORMANCE IN SOME OPERATIONAL TRANSACTIONS SINCE 2020-格隆汇

机构：中银国际
研究员：Eric HU/Emma XING

BOC Aviation (BOCA) announced to sign 31 lease commitments and deliver 5 aircraft on lease to airlines in 1Q24, which reflect stable growth in revenue. Looking ahead, we expect BOCA’s revenue to grow steadily in 2024 as BOCA is one of the geared beneficiaries of the recovery in global airline industry. However, its funding cost might be higher than our expectation as the US Federal Reserve may cut interest rates fewer times than expected in 2024. Overall, we still believe BOCA will report decent growth in core earnings in 2024 as Chinese policymakers will firmly promote further opening-up policy and global air passenger travel will continue to improve. Furthermore, we believe that BOCA has recovered two Boeing 747-8F detained in Russia in 1Q24, which should bode well for BOCA’s financial position and earnings growth.
Key Factors for Rating
In terms of delivery pipeline and lease commitments, BOCA achieved the best first quarter performance since 2020. BOCA reported 31 lease commitments in 1Q24, against 13 lease commitments in 1Q23. Meanwhile, BOCA added 10 aircraft to 2024 delivery pipeline in 1Q24, against 3 aircraft in 1Q23.
Its owned aircraft utilisation reached 99% as at 31 March 2024, unchanged from 99% at 31 December 2023. BOCA reported 4.8 years average fleet age and 7.9 years average remaining lease term in 1Q24, against 4.6 years and 8.1 years in 2023.
BOCA reported a customer base of 90 airlines in 45 countries and regions in the owned and managed portfolios in 1Q24, against 91 airlines in 45 countries and regions in 4Q23 and 86 airlines in 39 countries and regions in 1Q23.
Key Risks for Rating
The USD interest rate may further increase, which might lead to higher funding cost for BOCA. The global airline industry will be negatively affected if global economy slows down significantly.
Valuation
We expect BOCA’s core earnings to continue to increase in 2024 as global airline industry will further improve. However, as US Federal Reserve may slow its pace of interest rate cut, we expect its 2024E core earnings growth to be lower than we expected. Nonetheless, our forecast for 2024E reported net profit is largely unchanged, thanks to the recovery of two aircraft detained in Russia in 1Q24. Maintained BUY rating.