AerSale Corporation

ASLE Details

AerSale Corporation (NASDAQ: ASLE) is a global leader in aviation aftermarket products and services, with an integrated and diversified business model. ASLE’s operating segments are Asset Management Solutions (AMS) and TechOps. AMS engages in the sale and lease of aircraft, engines, and dissembled spare parts to passenger and cargo airlines and Original Equipment Manufacturers (OEMs), whereas TechOps deals in the sale of engineered solutions, aircraft modification, and Maintenance, Repair, and Overhaul (MRO) services. As of June 17, 2021, the company’s market capitalization stood at USD 535.15 million.

Conversion of Boeing 757 passenger to freighter: On January 05, 2021, the company announced that it has initiated the conversion of Boeing 757-200 aircraft from passenger to freighter (P2F) at its Goodyear, Arizona facility. By converting 24 such aircraft from its existing fleet, the company intends to generate revenue by catering to the needs of cargo airlines to meet the freight demands of booming e-commerce markets.

Q1FY21 Results: ASLE reported total revenue of USD 58.44 million for Q1FY21 (ending March 31, 2021) as compared to USD 57.14 million in Q1FY20, thus realizing slight growth of 2.30% YoY. The increase in the top line was fueled by the growth in the TechOps segment which reported an improvement of 10.94% YoY. However, despite a marginal increase in revenue, ASLE’s gross profit improved by 29.80% aided by higher margins on sales. Net income surged almost tenfold to USD 10.02 million in Q12021 in contrast to USD 1.06 million in Q1FY20. The boost in Net income was steered by the proceeds from the extension in the payroll support program provided by the U.S. Department of the Treasury on March 4, 2021.

Key Risks: ASLE operates in a commercial aviation industry that suffered a huge hit due to the outbreak of the COVID-19 pandemic. The imposition of lockdowns, travel restrictions to prevent the spread of COVID-19 have led to a sharp decline in passenger airline traffic since March 2020. If reduction in worldwide commercial activity continues due to COVID-19 it will distort the demand for airline cargo services, which in turn would have an unfavorable impact on the operational and financial performance of the company.

Outlook: In its Q1FY21 press release, the company outlined that it expects to clock revenue in the range of USD 340 – 360 million along with an EBITDA to the tune of USD 60 - 70 million in FY21. The guidance provided by ASLE rides on its anticipated sales of the converted P2F Boeing 757 aircraft and strong demand for MRO services at the airports.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

 (Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

ASLE Daily Technical Chart

Stock Recommendation: ASLE has increased by 1.06% and 10.80% in the past 3 months and 6 months, respectively, and is currently at the mid of the 52-week range of USD 8.68 to USD 18.35. The stock is currently trading above its 200 DMA level. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 13.44. Considering the uptick in the stock price in the past 6 months, quick cash conversion cycle, being in an advantageous position due to P2F conversion, no long-term debt, and associated risks, we recommend a “Hold” rating on the stock at the closing price of USD 12.41, down by 0.40% as of June 17, 2021.

* All forecasted figures and Industry Information have been taken from REFINITIV.

* The reference data in this report has been partly sourced from REFINITIV.