Calc:Raising forecasts

Strong financial management to boost growth

The recent positive 1H16 profit alert amid faster finance lease realisationand partial CB repurchase both suggest CALC's strong financialmanagement capability to drive earnings growth on top of the steadilygrowing core aircraft leasing business, which is on track. Trading at16/17CL PE of 8.4/6.8x and PB of 1.9x/1.6x, valuations remainundemanding given 29.0% 15-18CL EPS Cagr and c.26-27% ROE. Wemaintain BUY with a new target price of HK$10.10 (from HK$10.00) amidan earnings upgrade.

Positive 1H16 profit alert

CALC estimated its 1H16 profit to grow c.100% YoY, which is mainly driven bythe 4 finance lease realisations (1H15: nil) plus the steady core aircraft leasingbusiness. Given depreciation of Rmb and other currencies, USD-denominatedassets become more valuable now, the gain per deal in 1H16 is likely higherthan the HK$27m gain from each of the 2 deals done in 2H15, and theproceeds should facilitate faster fleet size addition. The 18 additions made in2015 (to 63 in total by end-15) also had fully contributed in 1H16.

Partial CB repurchase to reduce interest costs

CALC also announced it would repurchase HK$581.85m out of its HK$892.17mCB outstanding. Despite a premium price of 101.5%, this helps reduce interestcosts given the CB carries effective interest of 11.8%-14.1%, versus effectiveinterest of c.4.7% for other borrowings.

Core aircraft leasing business remains on track

Another 7 aircraft have been delivered YTD out of the 18 secured deliveriesthis year, suggesting on-track operation with high-growth visibility. One majorgoal for the company is globalization to capture more opportunities on leasing,aircraft buy/sell and financing channels, despite potentially resulting in slightlyhigher operating expenses.

Maintain BUY on still strong earnings momentum

We adjusted our 16/17/18CL core profit forecasts by +6.7%/+2.7%/-3.9% tofactor in more finance lease realisations (from 6 to 8 this year) and highergain per deal, as well as the partial CB repurchase. We also lift our TP fromHK$10.00 to HK$10.10 on the same 8x 17CL PE. We maintain BUY on stillsolid earnings momentum with 29.0% 15-18CL EPS Cagr and c.26-27% ROE.