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China Aviation Oil Singapore - RHB Invest 2016-02-26: Flying High

China Aviation Oil Singapore - RHB Invest 2016-02-26: Flying High CHINA AVIATION OIL SINGAPORE G92.SI 

China Aviation Oil Singapore - Flying High 

  • Our view that CAO would continue to fly high unperturbed by oil price fluctuation is vindicated by its organic growth from both domestic and overseas businesses. 
  • The company also looks to accelerate its growth through synergistic M&As, funded by its robust FCF and net cash hoard. 
  • Maintain BUY with a higher DCFE-based SGD1.28 TP (9.5% CoE, 2% TG), implying 11.8x FY16 P/E. 

Jet fuel imports surge with China’s fuel price floor. 

  • In Jan 2016, China implemented a price floor (a USD40/bbl “as if” scenario) for domestic fuel sales and thanks to this price floor, China Aviation Oil Singapore (CAO) has seen and would continue to see jet fuel imports surge. 
  • Combined with the organic growth of China’s aviation hub and positive catalysts (eg Shanghai Disneyland on volume from Shanghai Pudong International Airport Aviation Fuel Supply Corp (SPIA)), we remain positive on CAO’s domestic business and associates. 

Overseas expansion faring well. 

  • CAO’s overseas expansion continues to fare well as overseas supply volume rose 32% YoY to 1.77m tonnes and the number of overseas airports increased to 38 (2014: 34). 
  • Business volume for its American subsidiary, North American Fuel Corp (NAFCO) doubled while CAO Europe’s profit surged 316% YoY. 
  • In view of the brightening outlook, we raise our FY16 and FY17 earnings forecasts by 8.9% and 8% respectively. 

Strong FCF and cash hoard of USD170m to fuel inorganic growth. 

  • Backed by an adjusted FCF (to include associates dividends) of USD89.1m generated in 2015 and net cash hoard of USD170m (~45% market cap), CAO can easily acquire USD500m worth of downstream jet fuel assets without raising any equity. 
  • Through earnings-accretive acquisitions, CAO aims to surpass the USD100m profit milestone by 2020. 

250% profit surprise and dividends of SGD0.03. 

  • Despite weak macroeconomic conditions, CAO gave us a pleasant surprise on the upside with 4Q15 profit beating our USD4.5m estimate by 250%. 
  • CAO also announced dividends of SGD0.03, a 50% YoY increase as the group moves to a growthbased dividend payout formula (30% of net profit).



Edison Chen RHB Invest | http://www.rhbinvest.com.sg/ 2016-02-26
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 1.28 Up 1.24


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