BOC Aviation [2588 HK] issued a profit warning
<News Alert!> BOC Aviation [2588 HK] issued a profit warning
- BOCA announced that it will likely report a net loss of US$310m-330m in 1H22
- Consistent with other aircraft lessors, net loss during the period is solely driven by the full write-down of its Russian exposure (US$581m)
- Core operating performance remains solid; BOCA still expects to distribute an interim dividend
- Maintain BUY with unchanged TP of HK$76
Our thoughts:
- BOCA’s net loss in 1H22 does not come as a surprise as we’ve earlier flagged that the lessor will likely have to write-off its entire Russian exposure.
- Excluding the impairment losses, core net profit would have amounted to around US$260m in 1H22, as compared to around US$210-220m (after excluding earnings from its Russian fleet) in 1H21.
- As a recap, the group has insurance coverage which exceeds the entire net book value of its Russian fleet. While the management is fairly confident that they will receive their insurance claims, there is significant uncertainty over the timing, and this could potentially take a year or two to resolve given the complexity of the issue.
- Gross gearing ratio will remain healthy at below 3.5x even after the write-off, well below current covenants of 6.0x.
- BOCA will still distribute an interim dividend given that the underlying performance of its core portfolio remains solid.
- Overall outlook for aircraft lessors still remain positive at this juncture; no change to our recommendation and TP for now.