Leader of Regional Aircraft Leasing Business

As of the end of 2015, BOC Aviation was the largest aircraft leasing operator in Asia-Pacific as well as the fifth largest aircraft leasing operator around the world (as measured by owned aircraft). The company owns a new, fuel-efficient and on-demand fleet that encompasses 270 aircraft, among which 227 were owned by the company and 43 by third party under the company's custody. These aircraft have been leased out to 62 airlines in 30 countries.

Additionally, the company's portfolio of owned aircraft has an average age of 3.3 years, making it one of the youngest in the aircraft leasing industry. The average remaining lease term on the owned portfolio was 7.4 years and it is therefore one of the operators with the longest average lease term in the industry.

Optimistic Outlook of BOC Aviation

Thanks to the robust growth of the passenger volume and strong momentum of air travel (especially in Asia-Pacific), the outlook aircraft operating lease industry remains optimistic. Since 1990, the annual growth of passenger demand has been 1.5 times of the GDP growth rate. In addition, airlines tend to lease aircraft in recent years. Now, over 40% aircraft in the market was leased ones. During the past 30 years, the number of aircraft owned by operating lessors reported a compound annual growth rate of 11%, about twice as that of the commercial jet fleet in service. Moreover, it is forecasted that the industry will maintain a fast growth rate in the future.

With regard to BOC Aviation, the company also recorded a rapid growth rate. In 2015, the company's revenue was USD1.091 billion, a y-o-y increase of 10.4% and the net profit amounted to USD343 million, a y-o-y increase of 11.3%. At present, the company has 241 aircraft on order. Also, about 40 new aircraft will be put in to the leasing business every year in the future. Therefore, it is on the path of steady growth.

Low Cost of Capital

Thanks to the generous support by the BOC, BOC Aviation enjoys a variety of financing channels. With the stable credit rating, it is granted Rating A- by both Standard & Poor's and Fitch Group. Hence, the company enjoys a comparatively low average cost of capital. In 2015, its cost of capital was only 2.0%, far lower than those of other companies, like the China Aircraft Leasing Group (CALC), whose cost of capital was around 4.7% in 2015. At the same time, the company's financial structure is more conservative, with only 3.7x Debt to equity ratio, far lower than that of CALC, which is nearly 10X. Based on the above-mentioned factors, the main cost including depreciation and interest of the company, which was merely 50.5%, is lower than those of its competitors, as 54.55% of CALC. BOC Aviation is expected to maintain its edge in cost of capital.

Recommend Subscribing due to Prominent Advantages

In general, BOC Aviation has significant advantages in its business scale. In combination of its promising and steady growth, the low cost of capital and the stable financial structure, it shows sharp competitive edge. The offered price is HKD42 per share, with the PBR of about 1.1X, which was lower than that of the CALC, more than 2X. Therefore, we regard it worth subscribing.

Risks

The company fails to maintain its advantage of low cost of capital;

The market price or lease rate of aircraft decreases;

Aviation accidents happen and cost of fuel increases dramatically, etc.;

The USD interest rate increases significantly.

Financials

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