GF Sec has released a research report stating that it has rated BOC Aviation (02588) as a "buy" based on its performance in the first half of 2024 and the sustained high macroeconomic interest rate level. Net income attributable to equity holders of the Company is expected to be 0.84 billion yuan and 0.89 billion yuan in 2024 and 2025 respectively. After deducting the impact of Russian insurance compensation, the core net profit in 2025 is expected to increase significantly under the background of interest rate cuts and cost decline, with a fair value of HKD 78. The company delivered 18 aircraft and sold 15 aircraft in 1H24. In the same period last year, 16 aircraft were delivered, one of which was a managed aircraft, and 3 aircraft were sold in total.
The main points of the report are as follows:
Operation level:
(1) The company's business data has improved significantly, especially the significant increase in aircraft sales data. The high-growth aircraft sales volume may bring elastic growth in net sales revenue in the first half of the year.
(2) As of 2Q24, the average age of the company's own aircraft fleet is 4.9 years, which has increased compared to 4.6 years in 23, reflecting the decline in supplier delivery level. The increase in aircraft age may drive the company to increase sales of old assets, leading to an increase in aircraft sales revenue for the whole year.
Delivery aspect:
In terms of delivery, Boeing and Airbus delivered 131 and 256 aircraft respectively in January-May 2024, while Boeing and Airbus delivered 206 and 244 aircraft respectively in January-May 2023. The overall delivery level continued to deteriorate against the background of frequent safety issues with Boeing, while 24Q1 RPK and ASK both turned positive compared to the same period in 2019. Based on this, rental rates are expected to continue to grow.
Interest cost aspect:
In October 2023, the 10-year US Treasury bond yield fell from its high level. At the beginning of 2024, the new US bond coupon rate issued by the company was lower than the end of last year, which was obviously benefited from the decline in overseas interest rates. According to data from the US Department of Labor on July 5, 2024, the number of new non-agricultural workers in the United States in June 2024 was 0.206 million, higher than the market expectation of 0.19 million, but lower than the previous value of 0.218 million, based on this, which may magnify the expectation of an interest rate cut.
Risk warning: The recovery of the aviation industry, the pace of overseas interest rate cuts is slower than expected, and geopolitical risks, etc.