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Air Lease Corporation
Wu Qianwen (Joven)
Xu Wenqiang (Wayne)
Presented 10-29-2013
Agenda
•
•
•
•
•
•
•
Introduction & Current Holding
Macroeconomic Factors & Industry Overview
Company Overview
Management Outlook
Financial Analysis
Valuation
Conclusion & Recommendation
Introduction: Air Lease Corp. is an
aircraft leasing company
•
•
Business:
 Principally engaged in purchasing
commercial aircraft which the Company,
in turn, lease to airlines around the
world
 98% of revenue is rental income
Fleet:
 174 aircraft as of Jun, 2013
 132 single-aisle narrowbody jet aircraft,
30 twin-aisle widebody jet aircraft and
12 turboprop aircraft
 Weighted average age of 3.5 years
 Net book value grew by 11.7% to $7.0
billion as of June 30, 2013 compared to
$6.3 billion as of December 31, 2012
•
Employees:
•
Financials:
 52 in 2012, far fewer than competitors
 2012 annual sales: $ 645.853 million
 2012 net income: $ 131.919 million
Revenue
Million $
800
600%
500%
600
400%
400
300%
200%
200
100%
0
0%
2010
Net Income
Million $
2011
Revenue, million $
2012
YOY Grwoth
150
100
50
0
(50)
2010
2011
(100)
Net Income, million $
Source: 2012 Annual Report, Jun 30 2013 10-Q P15
2012
Current Holding: We bought 400
shares at $ 22.32 on Dec 18, 2012
•
Cost basis = $ 8,928
•
Closed @ $ 30.47 on
Oct 28, 2013
•
Market value = $
12,188
•
Gain = 36.51%
Source: Yahoo Finance
Industry & Macro: International airline industry
demands drive aircraft leasing industry historically
Aircraft Operating Leases as a Percentage of Total Worldwide
Aircraft Fleet
•
•
•
Source: Air Lease Prospectus P75
Late 1960s and early
1970s, airlines generally
own all of their aircraft
Airlines outsourced
ownership of many of
their airplanes through
leases as fleets
expanded and fixed
costs grew
Leasing companies can
provide airlines with a
diversity of aircraft types,
capacities, as well as
economic flexibility
Industry & Macro: Aircraft leasing industry
was expected to grow in 2010...
Aircraft Lease vs. Other Ownership-History and Extrapolation
•
•
•
•
Source: Air Lease Prospectus P76
Number of aircraft
on operating
lease in 2010:
6,800
Expected number
of aircraft on
operating lease in
2015: 8,500
Implied CAGR:
4.56%
This increase will
be driven by both
new aircraft
deliveries as well
as saleleaseback
transactions
Industry & Macro: ... And the story
doesn’t change much today
IMF GDP Growth Forecast
%, Oct, 2013
World RPK1 Growth Projection
%, By Major Regions
Country Group Name
2012
2013
2014
2015
World
3.177 2.871 3.588 3.964
Euro area
-0.641 -0.437 0.961 1.352
Major advanced economies (G7) 1.747 1.225 1.992 2.452
European Union
-0.302 0.022 1.251
Emerging market and
developing economies
4.915 4.549 5.074 5.348
ASEAN-5
6.161 4.963 5.416 5.538
Latin America and the Caribbean 2.934 2.681 3.111
Middle East and North Africa
1.6
Region
2012
2013
2012-2031
World
North America
Europe
Asia Pacific
Latin America
Middle East
Africa
5.90
1.70
4.40
8.20
7.90
16.60
8.30
4.00
3.00
1.30
6.60
6.10
6.60
5.10
5.10
3.70
4.00
6.20
6.60
7.10
6.90
Global New Aircraft Deliveries
2013-2032
40000
5
20000
4.5
3.53
4.608 2.146 3.774 4.174
Commercial air travel and air freight activity are broadly
0
4
correlated with world economic activity and expanding at
a rate of 1 to 2 times the rate of global GDP growth.
Boeing Forecast
Airbus Forecast
Number of Aircraft (Left Axis)
Value, trillion $ (Right Axis)
– AYR 2012 annual report
Footnote: 1. revenue passenger kilometers (RPKs) are measures of traffic for an airline flight, bus, or train calculated by multiplying
the number of revenue-paying passengers aboard the vehicle by the distance traveled
Source: IMF World Economic Outlook Database, AVITAS, Boeing and Airbus 2013 Market Outlook, AYR 2012 Annual Report
Industry & Macro: Emerging markets are
driving the future growth of the industry
Emerging Economies 2013 VS. 2032
Source: Airbus 2013 Market Outlook, IHS Global Insight
Industry & Macro: Overall, aircraft leasing is
a highly competitive market
Rivalry Competition
•Strong (4)1
Competition from aircraft manufacturers, banks, financial
institutions, other leasing companies, aircraft brokers and
airlines
Similar products
Internationalized market
Fragmented market with 100 lessors in 2010, top 5
control 50%+ number of aircraft and 60%+ of aircraft value
Substitutes
•Medium (3)
Only substitute is for airlines to own aircraft themselves,
which is common but not as efficient as leasing
Often airlines enter into “Sale and Lease Back” contract
with lessors
Operating leasing is the trend
Suppliers’ Bargaining Power
•Strong (4.5)
Only a few huge suppliers in the market such as Airbus
and Boeing
Buyers’ Bargaining Power
•Medium (3), emerging market (2.5) and mature market (3.5)
Large numbers of relatively smaller airlines in emerging
market, with few financing channels for aircraft and weak
pricing power
Relatively concentrated airline market in mature
economies, with larger and more mature airline companies
Threat of New Entrants
•Weak (2)
The industry requires expertise and customer
relationships
Smaller companies tend to own more aged aircraft,
which is not a very direct threat to the large players
Footnote: 1. Number in the brackets is the overall rating for this factor, larger number means stronger power
Source: AL Prospectus, AL Annual Reports
Company Overview: As a relatively young
company, AL business is growing fast...
Revenue
Million $
98% of revenue is rental income
800
477%
600
Fleet Size and Age
600%
200
400%
150
400
4
100
200%
200
95%
0
50
0%
2010
2011
Revenue, million $
0
2012
3
2010
2011
Fleet Size (Left Axis)
YOY Grwoth
Net Income
Million $
2012
2013H1
Fleet Weight-Average Age (Right Axis)
Planned Aircraft Acquisition
Planned 2013-2023 total
As of Dec 31, 2012
200
100
0
2010
3.5
2011
(100)
Net Income, million $
Source: AL 2012 Annual Report
2012
acquisition number is 325,
as of the end of 2012
40
35
30
25
20
15
10
5
0
2013
2014
2015
2016
2017
Company Overview: ... With an increasing
focus on emerging markets
Percentage of Net Book Value of Fleet by Region
%
100%
4.60%
90%
9.10%
5.80%
7.30%
80%
12.20%
12.60%
60%
32.00%
35.90%
50%
The Middle East
and Africa
Central America,
and Mexico
Asia/Pacific
30%
42.10%
Europe
0%
6.10%
90%
11.80%
8.20%
80%
9.20%
13.10%
28.00%
50%
33.40%
2012
Source: AL 2012 Annual Report
and Africa
Central America,
South America
40%
and Mexico
Asia/Pacific
30%
45.60%
39.20%
Europe
10%
0%
2011
The Middle East
U.S. and Canada
70%
20%
38.40%
10%
5.40%
60%
South America
40%
20%
100%
U.S. and Canada
70%
Percentage of Rental Revenues by Region
%
2011
2012
Management Outlook
• Increasing Percentage of Unsecure Debt
Borrowing
• Consistently adding new aircraft to the
portfolio
• Owned 155 aircrafts as of December 31,
2012
• Operating in 49 countries
• Net income increases 148% from 2011 to
2012
Source: AL 2012 Annual Report, Air Lease Website
SWOT Analysis
SWOT Analysis
Strengths
•
Young Fleet with average age of 3.5 years
•
High percentage of unsecured financing
•
Diversified markets, especially its focus on the
emerging markets
•
Small number of employees
•
Highly skilled management team with
established networks
Opportunities
•
•
Economy recovery
GDP growth in the emerging market
Source: AL 2012 Annual Report
Weaknesses
•
Stringent requirements to fulfill in order to
secure financing from the bank (restricted cash)
•
Highly dependence on few aircraft
manufacturers
Threats
•
Rising interest environment, 40% of the debt is
on floating terms
•
Inflation, with most of the rental stated as a
fixed amount
•
Exchange rate fluctuation
Financial Analysis (1)
Liquidity Ratios
Profitability Ratios
Solvency Ratios
Current Ratio
Quick Ratio
Cash Ratio
Operating Profit Margin
Net Profit Margin
ROA
ROE
Cash Return on Equity1
Debt/Assets
Debt/Equity
Interest overage
2010
11.22
11.22
0.31
2011
3.49
3.49
0.09
2012
1.75
1.75
0.05
2010
-104.37%
-89.16%
-2.29%
-4.25%
-2.68%
2011
24.60%
15.81%
1.03%
2.45%
7.61%
2012
31.11%
20.12%
1.79%
5.66%
14.92%
2010
46%
86%
1.13
2011
58%
137%
5.84
2012
68%
215%
4.45
Footnote: 1. Cash Return on Equity=(Net Income + Depreciation)/Equity, this is to take the large depreciation into account when
evaluating investor return
Source: AL 2012 Annual Report
Financial Analysis (2)
Activity Ratios
DuPont Analysis
Source: AL 2012 Annual Report
Fixed Assets Turnover
Total Assets Turnover
2010
4%
3%
2011
8%
7%
2012
10%
9%
Tax Burden
Interest Burden
Operating Profit Margin
Asset Turnover
Leverage
ROE
2010
85%
1
-104%
3%
1.86
-4%
2011
64%
1
25%
7%
2.37
2%
2012
65%
1
31%
9%
3.15
6%
DCF Analysis-Discount Rate
Weighted Average Cost of Capital
CAPM
Risk Free Rate
3%
Market Risk Premium
7%
Beta
1.35
Cost of Equity
12.45%
Source: AL 2012 Annual Report, Stock Price
Share Price
30.47
shares outstanding (thousands)
101,247
Market Capitalization
3,085,006
Market value of debt
4,384,732
Weight of Equity
0.41
Weight of Debt
0.59
Cost of equity
CAPM return
12.45%
Realized return
2.39%
Weighted cost of equity
9.93%
Composite cost of debt
3.94%
Effective tax rate
35.5%
WACC
5.59%
Other Business risk premium*
2%
Adjusted WACC
7.59%
*Note: Rising interest rate risk and emerging market
risk, sales volatility, and etc.
DCF Analysis
Air Lease Discounted Cash Flow Analysis (in thousands of dollars)
2013E
Net CFO
Interest*(1-t)
Capital Expenditure
Free Cash Flow
Present Value
Implied Enterprise Value
Less Debt
Implied Market Cap
Shares Outstanding
Implied Share Price
2014E
2015E
2016E
2017E
Terminal
Value
797,691
668,489 564,030 715,007 758,219
131,139
169,448 208,155 225,008 263,860
-1,386,833 -1,362,593 -1,013,108 -628,104 -553,686
-458,003
-524,656 -240,923 311,911 468,394 11,270,772
-425,682
-453,218 -193,431 232,753 324,857 7,816,893
7,302,173
4,384,732
2,917,441
101,247
28.81
Source: AL 2012 Annual Report, Stock Price
Terminal
Growth
Rate
WACC
3.30%
7.59%
WACC
DCF Analysis-Sensitivity Test
$28.81
5.59%
6.59%
7.59%
8.59%
9.59%
Implied Share Price
Terminal Growth Rate
2.9%
3.1%
3.3%
3.5%
$86.40
$97.49
$110.51
$126.02
$45.35
$50.90
$57.13
$64.17
$21.96
$25.24
$28.81
$ 32.74
$6.93
$9.05
$11.34
$13.81
$(3.51)
$(2.03)
$(0.46)
$1.21
Source: AL 2012 Annual Report, Stock Price
3.7%
$144.80
$72.18
$37.08
$16.48
$3.00
Comps Analysis-Stock Performance
Source: Google Finance
Comparable Analysis
Air Lease Corporation Comparable Company Analysis, Millions $
Target Company
Ticket Symbol
Air Lease
AL (NYSE)
Comparable
Ticket Symbol
AerCap Holdings
N.V.
Aircastle LTD
FLY Leasing
Limited
Price as of
10/25/2013
30.23
Price as of
10/25/2013
Shares
Outstanding
101.25
Shares
Outstanding
Price/B
TEV/Sa
Price/E
PEG
ook
les
8070
1.26X 13.68X 4.02X .61X
Price/B
TEV/Sa
Enterprise Value
Price/E
PEG
ook
les
Enterprise Value
AER (NYSE)
20.68
113.4
8210
1.02X
7.95X
2.38X .66X
AYR (NYSE)
19.15
80.78
4660
.9X
10.24X
2.2X
.48X
FLY (NYSE)
14.71
28.16
2330
.71X
10.66X
1.1X
-.56X
Comparable
Statistics
High
PEG
P/B
P/E
P/S
AL
22
23.99
2.21
7.52
1.02X 10.66X 2.38X .66X
Median
.9X
10.24X
2.2X
.48X
low
.71X
7.95X
1.1X
-.56X
Mean
.88X
10.45X 1.89X
Multiples
Implied Value
High
Median low
Mean
High Median
low
.66X
.48X
-.56X
.2X
32
23
-27
1.02X
.9X
.71X
.88X
24.47 21.59
17.03
10.66X 10.24X 7.95X 10.45X 23.56 22.63
17.57
2.38X
2.2X
1.1X 1.89X 17.90 16.54
8.27
Source: AL 2012 Annual Report
Price/B
TEV/Sa
Price/E
PEG
ook
les
Mean
9
21.03
23.09
14.24
.2X
Decision Drivers
• Strengths
– Young fleet: 3.5 years
– Diversified portfolio of airlines lessees
– High percentage of unsecure debt
– Management expertise and established
network
• Concerns:
– Rising interest rate environment
– Emerging market economy volatility
Recommendation
• Valuation Summary
– Current Stock Price: $30.47
– DCF Valuation: $28.81
– Comps Valuation: $23
• Recommendation
– Hold
Q&A
Thank you ,any questions?
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