Citigroup has updated its financial forecasts for BOC Aviation (02588) and raised the target price from HK$80 to HK$98.50. The adjustment reflects higher earnings expectations and incorporates the implied equity from the valuation premium of its aircraft fleet. The bank maintains a "Buy" rating on the stock.

Prior to the earnings quiet period, Citigroup held discussions with BOC Aviation's management. The company reported a 20% year-on-year increase in core net profit for the first half of 2025, with management anticipating continued strong growth in the second half of the year. Management reaffirmed its full-year dividend payout policy of 35% and indicated potential for further dividend increases given the company’s low leverage.

Management expects net lease yields to remain broadly stable in the second half of 2025 compared to the first half, while profit margins from aircraft sales are projected to improve. Strong market demand for aircraft has also supported the company’s implied equity, with the assessed fleet value exceeding the net book value of aircraft by 15% as of the end of the first half of 2025.

BOC Aviation’s capital expenditure for the 2025 fiscal year is largely in line with the previous target of US$4 billion, with plans to further increase spending in the 2026 fiscal year. Citigroup has raised its earnings estimates for BOC Aviation for 2025, 2026, and 2027 by 3%, 2%, and 3%, respectively, lifting the projections to US$754 million, US$841 million, and US$907 million. The revisions primarily reflect upward adjustments in forecasted gains from aircraft disposals.