Upload
whitley
View
37
Download
0
Tags:
Embed Size (px)
DESCRIPTION
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. - PowerPoint PPT Presentation
Citation preview
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: 52 in 2012, far fewer than
competitors• Financials:
2012 annual sales: $ 645.853 million
2012 net income: $ 131.919 million
Source: 2012 Annual Report, Jun 30 2013 10-Q P15
RevenueMillion $
Net IncomeMillion $
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
• 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
Aircraft Operating Leases as a Percentage of Total WorldwideAircraft Fleet
Source: Air Lease Prospectus P75
Industry & Macro: Aircraft leasing industry was expected to grow in 2010...
• 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 sale-leaseback transactions
Aircraft Lease vs. Other Ownership-History and Extrapolation
Source: Air Lease Prospectus P76
Industry & Macro: ... And the story doesn’t change much today
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 1.6
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 3.53
Middle East and North Africa 4.608 2.146 3.774 4.174
Source: IMF World Economic Outlook Database, AVITAS, Boeing and Airbus 2013 Market Outlook, AYR 2012 Annual Report
IMF GDP Growth Forecast%, Oct, 2013
World RPK1 Growth Projection%, By Major Regions
Region 2012 20132012-2031
World 5.90 4.00 5.10North America 1.70 3.00 3.70Europe 4.40 1.30 4.00Asia Pacific 8.20 6.60 6.20Latin America 7.90 6.10 6.60Middle East 16.60 6.60 7.10Africa 8.30 5.10 6.90
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
Global New Aircraft Deliveries2013-2032
Commercial air travel and air freight activity are broadly correlated with world economic activity and expanding at a rate of 1 to 2 times the rate of global GDP growth.
– AYR 2012 annual report
Industry & Macro: Emerging markets are driving the future growth of the industry
Source: Airbus 2013 Market Outlook, IHS Global Insight
Emerging Economies 2013 VS. 2032
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 airlinesSimilar productsInternationalized marketFragmented market with 100 lessors in 2010, top 5 control 50%+ number of aircraft and 60%+ of aircraft value
Suppliers’ Bargaining Power
•Strong (4.5)Only a few huge suppliers in the market such as Airbus and Boeing
Source: AL Prospectus, AL Annual Reports
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 powerRelatively concentrated airline market in mature economies, with larger and more mature airline companies
Footnote: 1. Number in the brackets is the overall rating for this factor, larger number means stronger power
Threat of New Entrants
•Weak (2)The industry requires expertise and customer relationshipsSmaller companies tend to own more aged aircraft, which is not a very direct threat to the large players
Substitutes
•Medium (3)Only substitute is for airlines to own aircraft themselves, which is common but not as efficient as leasingOften airlines enter into “Sale and Lease Back” contract with lessorsOperating leasing is the trend
Company Overview: As a relatively young company, AL business is growing fast...
Net IncomeMillion $
RevenueMillion $
Fleet Size and Age
Planned Aircraft AcquisitionAs of Dec 31, 2012
Source: AL 2012 Annual Report
Planned 2013-2023 total acquisition number is 325, as of the end of 2012
98% of revenue is rental income
Company Overview: ... With an increasing focus on emerging markets
Percentage of Net Book Value of Fleet by Region%
Percentage of Rental Revenues by Region%
Source: AL 2012 Annual Report
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
Strengths Weaknesses•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
•Stringent requirements to fulfill in order to secure financing from the bank (restricted cash)•Highly dependence on few aircraft manufacturers
Opportunities Threats•Economy recovery•GDP growth in the emerging market
•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
Source: AL 2012 Annual Report
SWOT Analysis
Financial Analysis (1)
Liquidity Ratios
2010 2011 2012Current Ratio 11.22 3.49 1.75Quick Ratio 11.22 3.49 1.75Cash Ratio 0.31 0.09 0.05
Profitability Ratios
2010 2011 2012Operating Profit Margin -104.37% 24.60% 31.11%Net Profit Margin -89.16% 15.81% 20.12%ROA -2.29% 1.03% 1.79%ROE -4.25% 2.45% 5.66%Cash Return on Equity1 -2.68% 7.61% 14.92%
Solvency Ratios
2010 2011 2012Debt/Assets 46% 58% 68%Debt/Equity 86% 137% 215%Interest overage 1.13 5.84 4.45
Source: AL 2012 Annual Report
Footnote: 1. Cash Return on Equity=(Net Income + Depreciation)/Equity, this is to take the large depreciation into account when evaluating investor return
Financial Analysis (2)
Activity Ratios 2010 2011 2012Fixed Assets Turnover 4% 8% 10%Total Assets Turnover 3% 7% 9%
DuPont Analysis
2010 2011 2012Tax Burden 85% 64% 65%Interest Burden 1 1 1Operating Profit Margin
-104% 25% 31%
Asset Turnover 3% 7% 9%Leverage 1.86 2.37 3.15ROE -4% 2% 6%
Source: AL 2012 Annual Report
DCF Analysis-Discount Rate
CAPM
Risk Free Rate 3%Market Risk Premium
7%
Beta 1.35Cost of Equity 12.45%
Weighted Average Cost of CapitalShare Price 30.47shares 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.
Source: AL 2012 Annual Report, Stock Price
DCF Analysis
Air Lease Discounted Cash Flow Analysis (in thousands of dollars)
2013E 2014E 2015E 2016E 2017ETerminal
ValueNet CFO 797,691 668,489 564,030 715,007 758,219 - Interest*(1-t) 131,139 169,448 208,155 225,008 263,860
Capital Expenditure -1,386,833 -
1,362,593
-1,013,10
8 -628,104 -553,686
Free Cash Flow -458,003 -524,656 -240,923 311,911 468,394 11,270,77
2 Present Value -425,682 -453,218 -193,431 232,753 324,857 7,816,893 Implied Enterprise Value
7,302,173
Less Debt 4,384,732
Terminal Growth Rate
3.30%
Implied Market Cap 2,917,441
WACC 7.59%
Shares Outstanding 101,247 Implied Share Price 28.81
Source: AL 2012 Annual Report, Stock Price
DCF Analysis-Sensitivity Test
Source: AL 2012 Annual Report, Stock Price
Comps Analysis-Stock Performance
Source: Google Finance
Comparable Analysis
Target Company
Ticket SymbolPrice as of 10/25/2013
Shares Outstanding
Enterprise Value
Price/Book
Price/ETEV/Sales
PEG
Air Lease AL (NYSE) 30.23 101.25 8070 1.26X 13.68X 4.02X .61X
Comparable Ticket SymbolPrice as of 10/25/2013
Shares Outstanding
Enterprise Value
Price/Book
Price/ETEV/Sales
PEG
AerCap Holdings N.V.
AER (NYSE) 20.68 113.4 8210 1.02X 7.95X 2.38X .66X
Aircastle LTD AYR (NYSE) 19.15 80.78 4660 .9X 10.24X 2.2X .48XFLY Leasing
LimitedFLY (NYSE) 14.71 28.16 2330 .71X 10.66X 1.1X -.56X
Comparable Statistics
Price/Book
Price/ETEV/Sales
PEG
High 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 .2X
Multiples Implied Value
AL High Median low Mean HighMedia
nlow Mean
PEG 22 .66X .48X -.56X .2X 32 23 -27 9 P/B 23.99 1.02X .9X .71X .88X 24.47 21.59 17.03 21.03 P/E 2.21 10.66X 10.24X 7.95X 10.45X 23.56 22.63 17.57 23.09 P/S 7.52 2.38X 2.2X 1.1X 1.89X 17.90 16.54 8.27 14.24
Air Lease Corporation Comparable Company Analysis, Millions $
Source: AL 2012 Annual Report
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?