We think the recent strong performance of BOCA is attributable to optimism over air transport recovery as vaccine steadily rolled out and investors’ chasing value names. Despite FY20E profit warning on impairment charges, we remain positive on BOCA’s long-term outlook, as we believe airlines will rely more on lessors for liquidity at early stage of post-pandemic recovery. Besides, BOCA’s strong liquidity position, activeness in PLB market and younger fleet with longer lease terms makes it able to gain share in current situation and secure longer-term growth. We lift our TP to HK$ 90.0 as we roll over valuation base to FY21E and apply higher multiples (implying 1.6x FY21E P/B). Maintain BUY.
- Lessors’ importance is expected to enhance in post-pandemic era. IATA’s latest estimates show that despite sequential improvement, global airlines’ cash burn will continue throughout 2021. We believe airlines’ reliance on lessors will grow for liquidity needs through PLB transactions. Though the risks of further rental deferrals and aircraft impairment still exist, low production rate of OEMs and airlines’ accelerating retirement of older and less-efficient aircrafts could help balance the supply and demand.
- BOCA’s strength stays intact for long-term growth. 1) BOCA kept an active presence in the PLB market throughout 2020, and signed PLB transactions of 73 aircrafts with 6 airline customers; a new transaction of 8 aircrafts was just announced in Mar 2021. The robust CAPEX despite OEM’s delivery delays can well support the Company to expand its fleet for longer-term growth. 2) BOCA held a younger-than-peers fleet with a weighted average age of 3.5 years and weighted average remaining lease of 8.6 years, and all aircrafts scheduled for delivery before 2023 are placed, providing relatively high visibility. 3) BOCA has obtained enhanced liquidity support from its parent company BOC, who increased revolving credit facility for it from US$ 2bn to US$ 3.5bn, and extended the maturity to year end of 2026.
- FY20E profit warning on impairment charges and investment losses. BOCA expected 25-30% PAT YoY decline for FY20E. We see the drop mainly came from 1) aircraft impairment esp. for wide body aircrafts leased with distressed customers; 2) impairment on rental deferrals and defaults; 3) investment losses by holding and selling shareholding in Norwegian Air Shuttle (share price down ~80% since equity-debt swap). We also expect net lease yield to fall below guidance (8-8.5%) as 16 out of 54 aircrafts deliveries came in in Dec 2020 that contributed limited revenue for FY20E.
