China Aviation Oil (CAO SP) - DBS Research 2017-11-03: Firm Associate Contributions Offset Poor Trading Profits In 3Q

China Aviation Oil (CAO SP) - DBS Vickers 2017-11-03: Firm Associate Contributions Offset Poor Trading Profits In 3Q CHINA AVIATION OIL(S) CORP LTD G92.SI

China Aviation Oil (CAO SP) - Firm Associate Contributions Offset Poor Trading Profits In 3Q

  • 3Q profit declines 7.7% y-o-y to US$21.4m despite 33% growth in revenues to US$5.2bn.
  • Difficult trading conditions lead to gross profit dropping 58% y-o-y to just US$4.3m.
  • Associate contributions grow 10.4% y-o-y to US$21.5m, led by 8% y-o-y growth at SPIA to US$18.9m.
  • China Aviation Oil (CAO) remains on track to meet our full-year forecasts; maintain BUY and S$2.08 target price.



What’s New

  • China Aviation Oil (CAO) reported 3Q17 results that were marginally below expectations, with net earnings declining 7.7% y-o-y to US$21.4m despite a 26% jump in volumes and 33% increase in revenue to US$5.2bn as difficult trading conditions led to lower trading gains for the quarter. As a result, gross profit fell 58% y-o-y to US$4.3m. This was largely offset by continued strong performance by its associates (+10.4% y-o-y to US$21.5m) and in particular the crown jewel of the company SPIA, which recorded a 8.2% y-o-y growth in profit contribution to US$18.9m. 
  • Contribution from other associates improved 29% y-o-y to US$2.66m.


On track to meet full-year forecasts. 

  • As at 9M17, CAO recorded a net profit of US$71.3m or a 0.4% gain y-o-y, versus our full-year net profit growth expectation of 1.1%. Hence, we are maintaining our forecasts, target price and BUY recommendation as CAO remains on track to meet our forecasts. Our target price of S$2.08 is based on 13x FY18 earnings.
  • We continue to like CAO given its monopolistic position as the sole importer of bonded jet fuel into China, and for its 33% stake in the exclusive jet fuel refueller (SPIA) in Shanghai Pudong International Airport. The company also has a growing international jet fuel supply and trading business that will increasingly benefit from its greater scale. 
  • CAO is also a beneficiary of growing air travel demand, both in China and globally as well.






Paul YONG CFA DBS Vickers | http://www.dbsvickers.com/ 2017-11-03
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.080 Same 2.080



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