BOC AVIATION(02588.HK)：DELIVERY IMPROVES STEADILY; WATCH ROE EXPANSION AMID ASSET-LIABILITY SYNERGY

Core Viewpoint - BOC Aviation is expected to enter a growth cycle with increasing volume and prices due to improved delivery and interest rate cuts by the US Federal Reserve, which supports steady valuation upside [1]. Company Performance - In 4Q25, BOC Aviation delivered 16 aircraft, marking a 3% increase year-over-year (YoY) and a 5% increase quarter-over-quarter (QoQ). The company committed to purchasing 14 aircraft [2]. - For the full year 2025, BOC Aviation delivered 51 aircraft, a 13% increase YoY, and committed to purchasing 160 aircraft. By the end of 2025, the owned fleet totaled 451 aircraft, a 16% increase YoY, with an order book of 337 aircraft, up 105 YoY [2]. Industry Supply Dynamics - Airbus and Boeing delivered a total of 1,194 aircraft in the first 11 months of 2025, compared to 1,114 for the entire year of 2024. AirInsight Group estimates that combined deliveries may reach 1,752 aircraft in 2026 [3]. - The tight supply-demand market is expected to support high-priced contract execution, while the ample order backlog provides a solid foundation for medium- to long-term business growth [3]. Asset Management - BOC Aviation sold seven self-owned aircraft in 4Q25, a decrease of 1 YoY and 3 QoQ. In 2025, the total sales of self-owned aircraft reached 35, reflecting a 6% increase YoY [4]. - The existing fleet has an average age of 5.0 years and an average remaining lease term of 7.8 years. As of the end of 1H25, the market value of the self-owned fleet had a 15% premium over its book value, indicating potential for asset premium realization [4]. Financial Outlook - The US Federal Reserve's interest rate cuts may lead to a marginal decline in financing costs, with floating-rate liabilities comprising 29% of BOC Aviation's existing liabilities as of 1H25, indicating strong sensitivity to interest rate changes [5]. - The company issued corporate bonds with coupon rates of 4.25% and 4.375% for 5.5-year and 7-year terms, respectively, which are lower than the 4.75% rate for a newly issued 3-year bond in January 2025 [5]. - Earnings forecasts for 2025 and 2026 are largely maintained, with a new forecast for 2027 set at US$931 million. The stock is trading at 1.0x 2026e and 0.9x 2027e P/B, with a target price raised by 8% to HK$87.9, implying 1.1x 2026e and 1.0x 2027e P/B with an 8.8% upside [6].