BOC International: Maintaining the target price of HK$40.25 for the “Buy” rating of China Airlines (03931)

The Zhitong Finance App learned that BOC International released a research report saying that considering the growth of China Airlines (03931)'s power and energy storage business, the bank raised its 2026-2028 revenue forecast by 3%-14% to 705.61/911.69/106.673 billion yuan, and raised the net profit forecast to mother by 3%-6% to 26.33/38.16/4.73 billion yuan. Based on the DCF model and rolling the valuation benchmark to 2027, the target price was fine-tuned to HK$40.25. The bank is still optimistic about the increase in the company's power and energy storage share, continuous breakthroughs from overseas customers, and profit improvements brought about by scale effects, and maintain a “buy” rating.

The main views of BOC International are as follows:

The scale effect drives profits to grow faster than revenue, and increases the contribution of energy storage and overseas business

1H26's revenue was 27.084 billion yuan, +65.0% year on year; net profit to mother was 935 million yuan, +100.7% year over year. The profit growth rate was significantly faster than revenue. Although gross margin fell 0.8 percentage points year on year to 16.7% year on year, the total sales/administration/R&D expenses ratio decreased by about 2.5 percentage points year on year to 8.0% year on year. The scale effect led to a 0.6 percentage point increase in net interest rate to mother to 3.5% year on year. By business, power battery revenue was +54.8% year over year to 16.506 billion yuan; energy storage system products and other revenue were +83.8% year over year to 10.579 billion yuan, and revenue share increased 4.0 percentage points year over year to 39.1%. Overseas business expanded at an accelerated pace. Overseas revenue increased 262.9% year-on-year to 1,185 billion yuan in the first half of the year, accounting for an increase of 2.0% to 4.4%. In terms of cash flow, the net operating cash flow inflow was 2,864 billion yuan, +12.0% year over year, but capital expenditure increased 113.3% year over year to 15.82 billion yuan, and investment to expand production is still at a high level.

Power batteries outperform the industry, and new customers and overseas markets continue to break through

According to SNE Research, 1H26's global power battery load was 31.2 GWh, which was +39.5% year over year, which is significantly faster than the 20.0% growth rate of the global industry; among them, the overseas market loading volume was 6.3 GWh, +80.5% year over year. In terms of the company's passenger car business, Xiaopeng, Hongmeng Zhixing and Toyota projects have been delivered steadily, the Xiaomi project has begun mass production support, and new overseas platforms such as Volkswagen and Hyundai continue to advance. Commercial vehicle shipments increased 225% year-on-year, and the coverage of light commercial, heavy truck and construction machinery customers was further expanded. In terms of energy storage, according to SNE Research, 1H26 shipped 31.5 GWh of energy storage batteries, ranking fifth in the world, with a market share of about 6.8%; the company continued to promote the delivery of 314Ah/392Ah batteries, mass production of 588Ah and 600+ Ah large batteries, and expand into scenarios such as power energy storage, industrial and commercial storage, household storage, and AIDC.