<News Analysis> 1HFY22 Profit Warning
- CALC published a profit warning that it will record a net loss between HK$130-170m in 1HFY22 because of impairments related to aircraft stranded in Russia.
- Barring the one-off impairment loss, CALC would have recorded a net profit between HK$270-310m (-4.2% y-o-y, +29.9% h-o-h)
- Core operations remain sound; the group still expects to declare an interim dividend
- We currently have a BUY call and TP of HK$8.40 on the counter.
- CALC’s net loss in 1HFY22 was largely expected and consistent with peers as aircraft lessors globally were forced to write-off their entire exposure to Russia given their inability to recover aircraft from the Russian airlines.
- Note that CALC’s exposure to Russian airlines (HK$438.6m) is notably smaller than global peers at around 1.5-2.0% of the net book value of its fleet (global average: 6-7%).
- The group has insurance coverage for its entire Russia exposure. The group should be able to receive its insurance claims, but this will likely be a protracted process given the sheer scale and complexity of the issue (entire aircraft leasing sector is filing claims at the same time).
- Excluding the one-off impairment charge, core net profit would have amounted to around HK$290m, accounting for around 38-40% of the street’s full-year net profit estimate, which was below expectations, likely due to timing issues around aircraft sales and steeper-than-anticipated financing costs.
- Based on the group’s preliminary estimates, total revenue was up by 15-20% y-o-y in 1HFY22, which is in-line with consensus’ estimates despite the steep decline in air passenger traffic in China over the past six months.
- Even with the write-off, the group’s financial leverage still remains comfortably above thresholds stipulated by financial covenants.
- Outlook should improve from hereon, given the stabilising epidemic situation in China, and gradual loosening of international travel restrictions in China and Hong Kong.