BOC Aviation Ltd (BCVVF) (H1 2024) Earnings Call Highlights: Record Profits and Strategic ...

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Wed, Oct 9, 2024, 4:26 PM 4 min read

Net Profit After Tax: $460 million for first half 2024, up from $262 million in first half 2023.
Earnings Per Share: $0.66 for first half 2024.
Interim Dividend: $0.1988 per share, a 76% increase from 2023.
Total Revenue and Other Income: $1.2 billion, an 11% increase from first half 2023.
Total Assets: $24.3 billion as of June 30, 2024.
Net Assets Per Share: $8.73, up 5% since end 2023.
Operating Cash Flow Net of Interest: $908 million, a mid-year record.
Cash and Undrawn Committed Liquidity: $5.5 billion at the end of first half 2024.
Total Fleet: 680 aircraft, including 429 owned, 32 managed, and an order book of 219.
Lease Commitments: Signed for 55 aircraft in first half 2024.
Average Age of Owned Portfolio: 4.9 years.
Weighted Average Remaining Lease Term: 7.9 years.
Lease Rate Factor: 9.8%, unchanged from first half 2023.
Net Lease Yield: 7%, unchanged from first half 2023.
New Financing Raised: $3 billion, including $1 billion from debt capital markets.
Gross Debt: $16.3 billion as of June 30, 2024.
Effective Tax Rate: 9.7% for first half 2024, down from 11.4% in first half 2023.

Warning! GuruFocus has detected 7 Warning Signs with BCVVF.

Release Date: August 15, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

BOC Aviation Ltd (BCVVF) reported a record net profit after tax of $460 million for the first half of 2024, a significant increase from $262 million in the same period of 2023.
The company declared an interim dividend of $0.1988 per share, marking a 76% increase compared to the previous year.
Total revenues and other income rose by 11% to $1.2 billion, driven by strong lease and rental income.
BOC Aviation Ltd (BCVVF) maintained a high collection rate above 100%, indicating strong financial health and customer payment compliance.
The company has a robust order book of 219 aircraft, positioning it well for future growth and supporting airline customers' expansion plans.

Negative Points

The aviation industry faces challenges with aircraft delivery delays, which are expected to persist until at least 2026.
BOC Aviation Ltd (BCVVF) experienced delays in receiving aircraft from manufacturers, impacting their delivery schedules.
The company's finance expenses increased due to a higher cost of debt, rising to 4.6% per annum in the first half of 2024.
Interest and fee income decreased by 10% due to lower contributions from pre-delivery payment financing.
The effective tax rate was lower at 9.7% due to write-back impairment losses, but future tax rates may increase due to global minimum tax rate adjustments.

Q & A Highlights

Q: Is BOC Aviation considering adopting a strategy similar to Aircan's recent acquisition of aircraft from Spirit's order book, especially given the low gearing ratio? A: Steven Matthew Townend, CEO, explained that BOC Aviation has historically supplemented its order profile with purchase leaseback deals. They have already concluded a few smaller deals this year and are open to larger opportunities if the overall package makes sense. The focus is on acquiring the right aircraft at the right price, which may involve looking further down the credit spectrum.

Q: How would potential Federal Reserve rate cuts affect BOC Aviation's funding costs and overall earnings? A: Steven Matthew Townend, CEO, stated that a reduction in funding costs would be positive, improving net profit after tax by about $3.6 million for each 10-basis-point reduction. Approximately 30% of their funding is floating rate, so benefits would be seen within three months of a rate cut. The strong demand for aircraft and supply constraints also provide a buffer against interest rate changes.

Q: What is the current incremental net lease yield for aircraft being leased out? A: Steven Matthew Townend, CEO, noted that incremental leases are being signed above the portfolio average. The low level of new deliveries has delayed the impact, but once deliveries increase, the benefits should become more apparent.

Q: How should we think about BOC Aviation's long-term effective tax rate, especially with the global minimum tax rate expected next year? A: Steven Matthew Townend, CEO, indicated that the global trend is moving towards a minimum 15% tax rate. The effective tax rate will depend on where aircraft are owned, driven by withholding taxes rather than income taxes. Over time, the rate is expected to move closer to the global minimum.

Q: With ongoing delivery delays from manufacturers, how confident is BOC Aviation in hitting its $4 billion CapEx target for the year? A: Steven Matthew Townend, CEO, acknowledged the challenges due to delays from both Boeing and Airbus. However, they aim to meet their target by potentially increasing purchase and leaseback transactions and exploring more PDP financing opportunities as manufacturers ramp up deliveries in the coming years.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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