BOC AVIATION(02588) 光大证券·2024-05-10 08:33Investment Rating - The report initiates coverage on BOC Aviation (2588 HK) with an "Overweight" rating and a target price of HKD 69 92, representing a 24x PB multiple for 2024 [1][8] Core Views - BOC Aviation is a leading aircraft leasing company with a competitive edge in transaction structuring, low-cost financing, negotiation capabilities, and aircraft asset management [1][3] - The company's short-term profitability was impacted by the pandemic and the Russia-Ukraine conflict, but its cash flow remained stable due to robust legal frameworks in the aviation leasing industry [1] - With the recovery of global aviation demand and potential interest rate declines, BOC Aviation's profitability is expected to surpass pre-pandemic levels [1][4] Business Overview - BOC Aviation operates primarily in operating leases, sale-and-leaseback, and third-party asset management services, with a fleet of 426 owned aircraft as of December 2023 [1] - The company's fleet is well-diversified, with 80% consisting of narrow-body aircraft, and it has a strong order book of 224 aircraft as of December 2023 [30][51] - BOC Aviation's revenue and profitability have shown resilience, with 2023 revenue reaching USD 2 46 billion, up 6 7% YoY, and net profit recovering to USD 763 9 million [33] Competitive Advantages - Transaction Structuring: The company maintains an effective tax rate of around 10%, lower than peers, due to its expertise in structuring cross-border transactions [1][43] - Low-Cost Financing: BOC Aviation benefits from a strong credit rating, long operating history, and support from its parent company, Bank of China, enabling it to maintain a low debt cost of around 3% annually [1][45] - Negotiation Power: With a stable and experienced management team, the company has strong bargaining power with suppliers and customers, enhancing its competitiveness [1][52] - Aircraft Asset Management: The company's strategy of customer diversification, flexible operational adjustments, and active aircraft trading improves fleet utilization and investment returns [1][54] Financial Projections - Revenue is forecasted to grow to USD 2 5 billion, USD 2 68 billion, and USD 2 92 billion for 2024-2026, with net profit expected to reach USD 710 million, USD 770 million, and USD 880 million, respectively [1][71] - EPS is projected at USD 1 02, USD 1 10, and USD 1 27 for 2024-2026, with ROE stabilizing at around 11 4%-12 1% [1][71] Industry Outlook - Global aviation demand is recovering, with 2023 passenger traffic reaching 94 1% of 2019 levels, driving demand for aircraft leasing [61] - Aircraft values and lease rates have rebounded post-pandemic, benefiting lessors like BOC Aviation [63] - A potential decline in interest rates could further enhance the company's profitability by reducing financing costs [64] - Boeing forecasts a demand for 42,595 new aircraft globally over the next 20 years, with China accounting for 8,560 of these, indicating significant growth potential for the leasing industry [66]