BOC Aviation (BOCA) has reported a 1H26 after-tax net profit of USD357mn, up by 4.4% YoY. During 1H26, the company delivered 24 aircraft (1H25: 24), with capex of USD2.3bn (1H25: USD1.9bn), as manufacturers’ capacity recovery bodes well for capex deployment and balance sheet expansion. The company sold eight owned aircraft (1H25: 18), but the aircraft sale margin rose to 32% (1H25: 9%). On yields, the lease rate factor was 10.4% (1H25: 10.3%), the cost of funds was 4.4% (1H25: 4.6%), and the net rental yield was 7.6% (1H25: 7.5%). In 1H26, Boeing and Airbus delivered a combined 665 aircraft (1H25: 586), with capacity still recovering. However, Middle East tensions have disrupted demand, with global RPK growing by only 0.6% in 1H26 and declining YoY for three consecutive months from April to June. Rising oil prices may affect airline cash flows, and both factors could cause short-term disruptions to aircraft rental rates and market values. In addition, the USD interest rate path may also affect financing costs. With its prudent fleet operation strategy and high credit ratings, the company is well positioned to navigate the cycle, and over the long term, it may benefit from capex deployment and asset expansion driven by delivery improvements. The 1H26 DPS was USD0.1799 (+22% YoY), reflecting the company’s emphasis on shareholder returns. Maintain BUY.
Aircraft supply continued to recover
On the supply side, Boeing and Airbus delivered a combined 665 aircraft in 1H26, up by 13% YoY. Delivery delays have stabilized, but supply chains still constrain output increases, and widebody production has yet to return to 2018 levels. On the demand side, according to the IATA, global RPK grew by 0.6% YoY in 1H26, but declined YoY for three consecutive months from April to June, with June down by 1.7%. Middle East airlines’ RPK fell by 23.2% YoY in 1H26. The average jet fuel price rose by 65% YoY in 1H26, and although higher ticket prices can partially offset fuel costs, airline profitability and cash flows still face pressure, which may cause short-term disruptions to aircraft rental rates and market values. Regarding the MV/BV ratio, growth in narrow-body aircraft has slowed, but widebody aircraft continue to rise. The company’s fleet market value has also increased, with the appraised market value over book value premium reaching 17% at end-1H26 (1H25: 15%). Despite short-term Middle East disruptions, we think that the aircraft supply-demand gap should persist over the long term, and rental rates and aircraft values remain resilient. Short-term cash flow pressure may also increase airlines’ demand for sale-and-leaseback and PDP financing, which presents opportunities for BOCA.
Earnings forecasts and valuation
While the company’s overall operations remain robust, we adjust our 2026/2027/2028 attributable net profit forecasts to USD776/854/931mn (-5.1/-2.1/ -1.3%) due to fewer aircraft sold and geopolitical uncertainties. Based on a 2027E target PB of 1.0x (previous: 1.11x 2026E; historical range: 1-1.5x in 2019) and our 2027E BVPS forecast of USD11.40, we slightly lower our target price to HKD89 (previous: HKD91).
Risks: 1) A slow recovery in the aviation industry; 2) a sharp rise in debt financing costs; 3) persistent disruptions to aircraft supply; and 4) tightening USD liquidity.