BOC Aviation Secures HK$106.9 Target as 2025 Core Profit Rises 18%
UBS upgraded its outlook for BOC Aviation (02588) on March 20, lifting its price target to HK$106.9 from HK$96.9 and reiterating a "Buy" rating. The 10.3% target revision is based on a 1.3x forward price-to-book ratio. The bank's confidence stems from the aircraft lessor's 2025 financial performance, where core net profit climbed 18% year-over-year to $746 million, outperforming both UBS and market consensus.
The primary positive surprise in the earnings report was a more generous shareholder return policy. BOC Aviation increased its dividend payout ratio to 40% of net profit after tax, up from 35% in 2024. This resulted in a dividend of approximately $0.45 per share, creating an attractive 4.6% yield at its current price. While reported net profit declined 15% to $787 million, this was due to reduced non-recurring income from settlements related to aircraft previously leased in Russia.
Favorable Market Dynamics Underpin Leasing Demand
BOC Aviation's management expressed confidence in future leasing demand, forecasting an aircraft supply shortage that will extend to the end of the 2020s. This tight supply creates a favorable pricing environment for new leases. Broader aviation industry data supports this bullish outlook. Airport operator Corporación América Airports, for example, recently reported total passenger traffic increased over 9%, with international travel expanding by 12%. Record passenger volumes in key markets underscore a robust global travel recovery that directly fuels demand for aircraft from lessors.
Middle East Conflict Poses Monitored Risk to 9% of Fleet
The company is actively monitoring regional risks, particularly the conflict in the Middle East. BOC Aviation disclosed that it has 25 aircraft, representing 9% of its fleet, on lease to six financially stable airlines in the region. Management confirmed that these aircraft are fully insured, mitigating potential financial losses from operational disruptions. The situation remains a key variable, as the duration of the conflict will determine how the credit risk of its airline clients evolves.
