<News Analysis> 2H21 net profit below estimates, but earnings prospects remain bright
CALC published a positive profit alert, sharing that its FY21 net profit will be around 55% higher than FY20, implying that FY20 net profit came in at around HK$510-520m, which is around 20% below our expectation.
Underperformance primarily driven by lower-than-expected gain on aircraft sales due to soft secondary market and deferral in aircraft sales
FY22-23F net profit estimates likely to be trimmed but CALC is still poised to see solid earnings growth over the next few years
Earnings estimates and TP of HK$8.20 under review; more updates to follow after the company’s full-year results announcement in mid-March
What’s new?
- CALC announced that FY21 net profit was around HK$510-520m, suggesting that the lessor booked a net profit of around HK$215.0m in 2H2021, down from HK$302.6m in 1H21.
- Sequential decline in earnings was largely due to the lessor delaying aircraft sales due to deterioration in aircraft values, which also led to a lower gain on sale per aircraft during the period
- Company expects the secondary market to improve from 2022, and shared that it expects to hit its initial target of selling 30 aircraft in 2022 (10-12 in 2021)
- CALC also believes that the impact of rising interest rates and inflation to be manageable.
Our thoughts
- The company’s disappointing results in 2H2021 was largely due to timing issues and does not significantly alter the positive narrative on the stock.
- CALC is in a solid position to navigate a rising interest rate and inflation environment, given that aircraft values typically grow in tandem with inflation, and lease rates should rise as airlines will be more inclined to turn to leasing, rather than purchasing aircraft as interest rates increase.
- Overall, we are still optimistic on CALC’s earnings momentum given its substantial orderbook, the imminent recovery in global air travel, and structural tailwinds in the aircraft leasing sector.