The Zhitong Finance App learned that CICC released a research report stating that it maintains the BOC Air Leasing (02588) “outperforms the industry” rating, basically maintaining the 24-year profit forecast, introducing a 25-year profit of 780 million US dollars, and a target price of HK$81.4. The company's revenue in 2023 was +7% YoY to US$2.46 billion, and net profit was +3708% YoY to US$760 million, in line with this forecast; excluding the impact of aircraft delayed in Russia and +4% YoY to US$547 million, the lower core net profit growth rate was mainly due to the concentration of aircraft deliveries in 2023 at the end of the year, which delayed the rental revenue contribution; among them, 2H23 core net profit was -11% YoY /+9% YoY to US$285 million, mainly affected by rising financing costs and the month-on-month rental yield rebounded.

The main views of CICC are as follows:

Order book+financial leasing together support the steady growth of the fleet.

The company received a total of 65 aircraft in 23 years. Despite industry supply pressure, the company's annual delivery number reached the highest level since 2017. Among them: 1) 41 financial leased aircraft were delivered, which is an important source of the company's incremental business; according to Cirium statistics, the capital required for global aviation aircraft delivery in 24 years will reach 100 billion US dollars. Huge capital requirements are compounded by tight liquidity. The bank expects that financial leasing and aircraft purchase and leaseback will still be an important business increase; 2) The order book has delivered 24 new aircraft, and the company's current order volume has reached 224 aircraft, all of which are the latest technology aircraft. A sufficient and high-quality order book structure lays the foundation for the long-term growth of the fleet. Furthermore, the number of lessors with order deliveries was further reduced, and the competitive advantage of the company's fleet continued to be highlighted.

Under a pattern of tightening supply and demand, net rental yields and asset prices have entered the expansion channel.

The company's 23-year gross lease yield was +0.8ppt to 10.0%, driving a net rental yield of +0.2ppt to 7.1%, while financial leasing interest rate was +0.4ppt to 6.6% year-on-year. Looking ahead: 1) Since most of the company's fleet was delivered centrally at the end of the year (39 aircraft were delivered in 4Q23, accounting for 60% of the annual delivery volume), and the total increase in average asset and rental yield reached 48 aircraft in 2024, the total increase in average asset and rental yield will be reflected in 2024; 2) The bank believes that the company's new financing costs in 24 years will be narrower than last year, and the increase in stock financing costs will slow down (+1.0ppt to 4.1% year-on-year capital costs in 23); in a comprehensive forecast, the 10-year interest rate on US bonds may drop to 3.8%; Net rental yields will continue to expand this year. At the same time, aircraft asset prices continued to rise. The bank believes that the company will gradually redeem investment benefits through regular asset sales in the future.

The dividend policy exceeded expectations, demonstrating the importance attached to shareholder returns.

Previously, in 2022, due to the impairment of the Russian aircraft involved, the company chose a 35% dividend on core net profit after excluding the impairment effect; after recovering compensation payments for 11 Russian aircraft this year (net amount of US$220 million after tax), it was based on a 35% dividend on total net profit (corresponding core net profit dividend rate of 49%) and a dividend rate of 5.3% corresponding to 2023, reflecting the company's abundant liquidity and emphasis on shareholder returns.

Risks: Geopolitical risk; demand recovery falls short of expectations; aircraft delivery delays exceed expectations.