BOC Aviation: Shares Attractive; Retrieved Freighters Add Value but We Push Back Yield Expansion

While we still expect United States interest rates to start easing in the second half of 2024, we push back the extent of the cut in our assumptions and, thus, see a more gradual improvement in BOC Aviation’s net lease yield over the next few years. As a result, we lower our 2025-28 profit forecast by an average of 29%, but we raise our fair value estimate to HKD 73 from HKD 71 after accounting for the possible rise in the company’s asset value following the return of two Boeing 747-8 freighters from Russia. At HKD 73, BOCA would trade at 1.02 times the 2024 estimated price/book. BOCA’s current share price is attractive at 0.79 times price/book, 7.8 times price/earnings, and around a 20% discount to our fair value estimate. We expect BOCA to average 9.4% core earnings growth through 2028 as it benefits from easing interest rates.