2019 earnings slightly beat our forecast
CALC’s FY19 revenue grew 5.4% to HK$3.5bn, missing our forecast by 8%, mainly due to slower-than-expected fleet expansion. Earnings rose 10.8% to HK$896mn, beating our estimate by 3%, on the reversal of previous tax provisions. Dividend payout ratio fell 1.6ppt to 53.7% with full-year DPS of HK$0.71.
Trends to watch
Fleet size expansion slows in 2019 while order book remains strong.Fleet size expanded to 134 by end-2019 （vs. 133 end-2018）， including 111 self-owned （vs. 115 end-2018） and 23 managed （vs. 18 end-2018）。 Total deliveries decreased from 29 to 11 in 2019, due to delays for Boeing’s MAX 737 and Airbus’ Neo. For self-owned fleet, the average age rose from 3.7 years to 4.6 years in 2019 while remaining leased period stayed stable at 8.2 years. By end-2019, CALC had an order book of 218 aircraft to be delivered by 2024. In addition, 40 new A321neo aircraft were added to the company’s backlog in January.
Both lease rental yield and funding cost improved. Lease income, accounting for 70% of total revenue, grew 5.4% to HK$2.5bn. Fleet size under finance lease fell from 62 at end-2018 to 53 at end-2019, while those under operating lease rose from 52 to 57. Average finance lease rental yield was 12.6% （2018: 11.7%）； for operating lease it was 9.3% （2018: 9.2%）。 Overall funding cost fell from 5.17% in 2018 to 5.09% in 2019.
Continues developing asset-light model and aircraft lifecycle management. CALC’s asset management income rose 437% YoY to HK$78mn, with diversified off-B/S funding via ABS, JVs, and other funds. CALC established an “OEM-Lessor-Airlines” ecosystem, featuring: 1） aircraft financing under an asset-light model; 2） investments in airlines - e.g. 35.7% equity interest in TransNusa; and 3） entrance into the aviation aftermarket via its associate Aircraft Recycling International Limited .
Financials and valuation
We believe modest global economic growth amid signs of a slowdown in China, the COVID-19 outbreak, and uncertainty around the 737 MAX’s return will pose challenges in 2020. However, CALC’s full-value-chain aircraft asset manager model and strong order book should support stable operations. We raise our 2020 earnings forecast 3% to HK$979mn and introduce a 2021 earnings estimate of HK$1.1bn. CALC trades at 1.2x 2020e P/B with a dividend yield of 9.8%. Maintain OUTPERFORM and TP at HK$10.07 （1.5x 2020e P/B）， offering 25% upside. Risks: Aircraft delivery delays; global economic slowdown; surging oil prices.