Excerpts from analyst's report

Phillip Securities Research analyst: Chen Guangzhi

♦ Share of profit from associates and JVs met 75% of our full year expectations of US$45.0mn

♦ US$47.8mn net profit met 67.8% of our full year expectations of US$70.5mn

♦ Switched valuation method from discounted FCFE to PE ratio. We upgrade to “Buy” rating with a higher TP of S$1.92, implying a 31.5% return from the last closed price of S$1.46.


cao fuelCAO's storage tanks can be found near major PRC airports. Photo: CAO


CAO is expanding its business and improving profitability. In view of higher working capital (which could lead to declining or even negative CFOs), we think that PER is a more appropriate valuation method. Based on the average forward PER of 14.2x from its peers and an estimated FY16 EPS of US$10.1 cents (S$13.5 cents), we derived a higher TP of S$1.92 and upgrade our rating to Buy.

China Aviation Oil
Share price: 
$1.46
Target: 
$1.92

Low oil price fueled aviation sector boom, benefiting aviation fueling business correspondingly
CAO performed outstandingly in 1H16 with mid double-digit growth in gross, operating, and net profit, albeit the top line dipped slightly. Riding on the growth of global civil aviation traffic, CAO’s jet fuel supply has been experiencing strong demand, especially in China market.

The jet fuel supply and trading volume increased by 11.77% yoy to 6.74mn tonnes in 1H16, which offset the 49.8% yoy decrease in jet fuel price. As a result, the revenue dropped moderately by 16.6% yoy to US$3,247.3mn in 1H16.


♦ Higher target price of $1.92
"We use World Fuel Services, Bangkok Aviation Fuel, and San-Ai Oil as peers. World fuel Services is a global transportation fuels provider, which is a goal CAO aims to achieve. The rest of the companies are single region fuel providers.

"Based on our FY16e EPS of US$10.1 cents (S$13.5 cents) and the average forward PER of 14.2x, we derived a higher TP of SG$1.92 and upgrade to Buy."

-- Chen Guangzhi (Phillip Securities Research)

Gains from other oil products trading surged, proving the success of product mix diversification
In 1H16, the revenue contributed by the oil product trading segment amounted to US$1,240.3mn with 74.1% yoy up. The high double-digit growth was attributable to the 154.2% yoy increase in trading volume which reach 6.89mn tonnes.

The segment mainly engage in fuel oil and gas oil trading, with fuel oil being the major revenue generator. Referring to Figure 4 and 5, according to Joint Organizations Data Initiate, the import and export volumes of fuel oil in Singapore improved in the first 4 month this year, and are hovering above their 5-year averages. Riding on the upward momentum, we expect CAO to see stronger growth in fuel oil trading in Singapore in the foreseeable future.


Full report here.


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