New Stock Analysis | Xirui Aircraft: Leading Private Jet Company Goes Public in Hong Kong to "Raise Funds"

In the past few decades, the growth of the global economy, the advancement of technology, and the constant improvement of airport infrastructure and related support services have been driving the growth of the global general aviation market. In 2022, the total delivery of general aviation aircraft (including private aircraft and fixed-wing professional aircraft) reached 2,818 units, with a total value of approximately $23 billion. Among them, the global delivery of private aircraft reached 2,124 units, accounting for a high proportion of 75.4%. It is worth noting that the private aircraft market tends to be concentrated among top companies due to high barriers to entry. Among them, Cirrus Aircraft Limited, as a "leader" in the global private aviation market, had a market share of 29.6% in 2022. In 2023, Cirrus Aircraft expects to further expand its global market influence with the help of the capital market. According to the Hong Kong Stock Exchange's disclosure on November 15th, the company underwent a listing hearing on the main board of the Hong Kong Stock Exchange, with CICC as its exclusive sponsor. Whether this "top player" in the private aviation market can become a high-quality investment target is worth further exploration. Dual growth curve, stable performance growth According to Cirrus Aircraft's prospectus, the company's history can be traced back to 1979. At that time, the co-founders, the Klapmeier brothers, began developing the VK-30 homemade aircraft in Wisconsin, USA. In 1987, the Klapmeier brothers founded Cirrus Design, and the VK-30 aircraft successfully made its first flight in 1988. In 1996, Legacy Cirrus Industries was registered and established. In June 2011, Legacy Cirrus Industries was acquired by a subsidiary of the China Aviation Industry Corporation called Catic General Aviation. After the completion of the merger in June 2011, Legacy Cirrus Industries became indirectly wholly owned by Catic General Aviation. In terms of product portfolio, Cirrus Aircraft designs, manufactures, and sells single-engine piston and jet aircraft, continuously improving performance, safety, and comfort through innovative technology and advanced systems. The company provides an innovative and complementary product portfolio covering a range of private aviation solutions. The company's aircraft are mainly used for private and business travel and are usually operated by aircraft owners who hold pilot licenses. Currently, Cirrus Aircraft has two aircraft product lines, including the SR2X series and the Vision Jet, and has established industry standards for owner-piloted aircraft. They have obtained certifications and validations in over 60 countries. The SR2X series includes entry-level aircraft SR20, SR22, and SR22T, with continuously improving performance and capabilities to meet customers' different needs and preferences for single-engine piston aircraft. According to the General Aviation Manufacturers Association, the SR2X series has been the best-selling single-engine piston aircraft for the past 21 years. Based on the 2022 delivery volume, the SR2X series accounted for 46.3% of the market share of certified fixed-gear piston aircraft. The Vision Jet is designed for the different and higher-end markets of the private aviation industry, offering significantly enhanced performance, capabilities, and specifications at a higher price. The Vision Jet typically carries a maximum of five adults and two children. According to the General Aviation Manufacturers Association, since the first delivery of the Vision Jet in 2016, it has been the best-selling jet below $7 million for five consecutive years. Based on the 2022 delivery volume, the Vision Jet accounted for 25.8% of the market share of single-turboprop pressurized aircraft under $7 million. Since its establishment in 1984, Cirrus Aircraft has delivered over 9,000 SR2X series aircraft and over 450 Vision Jets. With the successful delivery and increasing volume of the Vision Jet, the company's performance has achieved stable growth. For the fiscal years ending on December 31, 2020, 2021, and 2022, the company's revenue was $587 million, $738 million, and $894 million, respectively, with a compound annual growth rate of 23.5%. The annual profits were $3.6 million, $7.2 million, and $8.8 million, respectively, with a compound annual growth rate of 56.2%. As of the five months ending on May 31, 2022, and 2023, the company's revenue was $239 million and $316 million, with a growth rate of 32.3%. The profits during that period were $9.6 million and $16.2 million, respectively, with a growth rate of 68.9%. Future production supported by backlog orders It is expected that Cirrus Aircraft's stable performance growth will be maintained in the next few years. According to the prospectus, as of July 31, 2023, the company has a backlog of 1,437 aircraft, which will support several years of production. During the same period, the backlog includes 266 orders. On the other hand, the private aviation aircraft delivery market will continue to grow steadily. According to Frost & Sullivan's report, the delivery volume of the private aviation aircraft market is accelerating compared to the overall general aviation aircraft market. The private aviation market benefits from factors such as global economic recovery after the pandemic, restored business confidence, and an increase in the number of global high-net-worth individuals. The increasing interest of high-net-worth individuals in private aviation is due to the mobility, privacy, safety, flexibility, and year-round availability that private aviation offers. With the increasing popularity of high-end mobile services targeting customers seeking the best personalized and customized aviation transportation solutions, it is expected that the delivery volume of private aviation aircraft will reach 3,077 units in 2027, with a compound annual growth rate of 7.4% from 2023 to 2027. High inventory ratio and capital expenditure pressure To seize the opportunity of further market growth in the private aviation industry, Cirrus Aircraft has clear development plans, including monetizing its existing customer base, improving flight training solutions, advancing and expanding its aircraft and service portfolio, increasing production capacity, expanding the global market, and creating on-demand private aviation solutions. Implementing these measures means thatIn the future, Xirui Aircraft will increase its capital expenditure. During the past performance period, Xirui Aircraft's capital expenditure mainly included the purchase of properties, factories and equipment, as well as intangible assets. As of the fiscal year ended December 31, 2020, 2021, and 2022, and the five months ended May 31, 2023, the company's capital expenditure amounted to $11.8 million, $49.2 million, $70.8 million, and $22 million, respectively. The company expects to generate capital expenditures of approximately $112 million and $120 million in 2023 and 2024, mainly for continued expansion plans and intangible assets.The pressure of large capital expenditures is the core driving factor for Xirui Aircraft to expand its financing channels. Xirui Aircraft stated in its prospectus that based on the company's production capacity, the production and delivery of existing reserves require approximately 18 to 24 months. This means that the production process will consume a large amount of capital. As of May 31, 2023, the company's inventory amounted to USD 209 million, accounting for about 50% of the total current assets. At the same time, the company's year-end cash and cash equivalents were USD 153 million, indicating that the company will face financial pressure to a certain extent if it significantly increases capital expenditures. Xirui Aircraft stated in its prospectus that the company's business and growth strategies face uncertain factors and risks, including customer acceptance and commercial success of the company's strategy, as well as uncertain factors and risks related to significant capital expenditures and investments for providing new products and services, which may have a significant adverse impact on the company's business, financial condition, operating performance, and prospects. It should be noted that although Xirui Aircraft can solve its capital expenditure issues through IPO financing, the global private aircraft market industry has a limited ceiling. If there are significant changes in customer demand and preferences, it will bring uncertain factors to the company's growth prospects. As stated in Xirui Aircraft's prospectus, there is uncertainty as to when or if the company's existing aircraft reserve will be converted into income, as this conversion depends on factors including production capacity, customer demand, credit availability, and affordability. Economic changes in the past have led to and may continue to lead to customer requests to reschedule, postpone, or cancel company orders. The company's inability to predict or respond to such changes may also reduce demand for aircraft.