China Aviation Oil Singapore Corp (CAO SP) - UOB Kay Hian 2016-10-13: The Golden Week Special

China Aviation Oil Singapore Corp (CAO SP) - UOB Kay Hian 2016-10-13: The Golden Week Special CHINA AVIATION OIL(S) CORP LTD G92.SI

China Aviation Oil Singapore Corp (CAO SP) - The Golden Week Special

  • Once again, readings from China’s Golden Week holidays show that international travel and traffic in Shanghai PuDong airport remained robust. 
  • CAO’s management also shared the same optimism, indicating a bullish 2H16 outlook. Thus, we reiterate our confidence that its upcoming 3Q16 results will be stellar and the company is on track to deliver record profits for 2016. 
  • Maintain BUY. Target price: S$1.90.


WHAT’S NEW


Another good year for Golden Week international travel. 

  • International travel in China continued to show strength despite the slowdown in the local economy. According to Ctrip, China’s leading online travel agency, outbound tourism during the National Day Golden Week grew 12% yoy in 2016, up from the 10.7% in 2015.

Combined air traffic also saw double-digit growth. 

  • Similarly, according to the Civil Aviation Administration of China (CAAC), combined passenger traffic for both domestic and international flights increased 11.6% yoy during the Golden Week.

Management shared our optimism on 3Q16 results and beyond. 

  • In line with the bullish industry data, management is confident of its 3Q16 results. 
  • Moving into 4Q16, the company tends to experience seasonal weakness as unlike in the western countries, December is not a festive season for China. 
  • However, management noted that as CAO has diversified further into the US and European markets, this seasonal weakness could gradually fade away over time.


STOCK IMPACT


Confident of a stellar 3Q16. 

  • We reiterate our confidence in CAO delivering a stellar set of 3Q16 results. 
  • We also reckon that there is significant upside to our full-year earnings estimate if the jet fuel contango market were to stay.


VALUATION/RECOMMENDATION

  • Maintain BUY and target price of S$1.90, based on 14.4x 2017F PE, pegged at a 20% discount to peers’ average PE of 18x.


SHARE PRICE CATALYST

  • A steeper jet fuel futures contango market will likely enhance trading profits.
  • Any M&A announcements on earnings-accretive fuel assets will also likely result in share price reviews.




Edison Chen UOB Kay Hian | http://research.uobkayhian.com/ 2016-10-13
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.90 Same 1.900



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