CICC: Maintains BOC AVIATION "Outperform Industry" Rating with a Target Price of HKD 81.4

According to the Zhitong Finance APP, China International Capital Corporation (CICC) has released a research report maintaining a "outperform industry" rating for BOC Aviation (02588), with a target price of HKD 81.4. BOC Aviation announced its operational data for the second quarter of 2025, indicating that the improvement in the delivery speed of new aircraft will help the company fulfill potential high-priced contracts; a sufficient order reserve is expected to lay a solid foundation for medium to long-term business growth. The firm believes that if expectations for a Federal Reserve interest rate cut increase, the company's stock price is likely to receive short-term catalysts.

CICC's main points are as follows:

Aircraft deliveries continue to improve, gross leasing yield may enter an upward channel

In Q2 2025, the company delivered 13 aircraft (year-on-year flat, quarter-on-quarter +2 aircraft), committed to purchasing 18 aircraft and one engine, and signed 27 leasing commitments. In total for the first half of the year, the company delivered 24 aircraft (year-on-year +6 aircraft, quarter-on-quarter +4 aircraft). As of the end of the first half of 2025, the total size of the company's owned fleet increased by 12 aircraft year-on-year and by 6 aircraft compared to the end of 2024, reaching 441 aircraft, with the order book increasing by 132 aircraft year-on-year and by 119 aircraft quarter-on-quarter to 351 aircraft. According to Cirium data, despite overall delivery tightness, aircraft leasing prices are still showing an upward trend. For example, the leasing rate for the company's main model, the Airbus A320NEO, increased by approximately 6% year-on-year as of February 2025. The firm believes that the improvement in the delivery speed of new aircraft will help the company fulfill potential high-priced contracts and support the gross leasing yield entering an upward channel; while a sufficient order reserve is expected to lay a solid foundation for medium to long-term business growth.

The number of aircraft sold is also steadily increasing, and asset premiums are expected to be realized

In Q2 2025, the company sold 14 owned aircraft (year-on-year +3 aircraft / quarter-on-quarter +10 aircraft); in the first half of 2025, a total of 18 owned aircraft were sold (year-on-year +3 aircraft). Considering that as of the end of 2024, the market value of the company's owned fleet has a premium of 15% over its book value, the firm believes that the steady sale of aircraft assets will continue to optimize the quality of the owned fleet while also helping the company realize asset premiums, supporting short-term profit performance.

It is recommended to continue to pay attention to short-term trading opportunities under fluctuations in interest rate cut expectations, and the medium to long-term return space provided by ROE improvement

1. From a short-term perspective, the company's higher proportion of floating rate liabilities compared to other lessors (27% at the end of 2024) brings higher sensitivity to interest rate cuts. Historically, its stock price performance has been significantly influenced by the trend of U.S. Treasury yields and expectations for Federal Reserve interest rate cuts. For example, during the previous period of strong expectations for Federal Reserve interest rate cuts, the company's stock price rose by a cumulative 18.7% from its low to high in November 2023, and by 26.2% cumulatively in July 2024. Looking ahead, the firm believes that if expectations for a Federal Reserve interest rate cut increase, the company's stock price is likely to receive short-term catalysts.

2. From a medium to long-term perspective, the improvement in deliveries is expected to drive gross leasing yield upward, while overseas interest rate cuts will promote improvements in financing costs. The company's ROE is expected to enter a steady recovery range, and the historical valuation center of the company has a high correlation with ROE performance. The expansion of ROE is also expected to create space for steady valuation increases.

Risk Warning: Uncertainty in tariff policies; significant decline in global aviation demand under trade frictions; geopolitical risks