China Aviation Oil Singapore - RHB Invest 2016-07-29: Another Stellar Quarter

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CHINA AVIATION OIL SINGAPORE G92.SI 

China Aviation Oil Singapore - Another Stellar Quarter

• CAO’s USD47.7m 1H16 net profit came in ahead of our estimate. All business segments witnessed volume growth as outperformance was driven by margins improvement and strong growth posted by associates/JVs. 
• While we expect the growth story to continue, we would like to highlight the disproportionate growth in the trading of other products (non-jet fuel) vs supply of jet fuel products in 1H16. 
• Pending clarification from management on the outlook for this business, we place our rating and TP under review. Our last call was BUY and SGD1.22 TP.

Steady growth in the jet fuel business. 

• Jet fuel volume rose 11% to 6.7m tonnes in 1H16, aided by continuing growth in China and international aviation traffic. Although revenue fell amidst lower oil price, the fixed cost plus nature of profitability enabled China Aviation Oil (CAO) to post higher margins.

Associates did well. 

• CAO’s key associate, Shanghai Pudong International Airport Aviation Fuel Supply booked a 41% YoY rise in 1H16 contributions to USD29.6m, aided by higher refuelling volumes and increased margins. Oilhub Korea’s contributions increased 275.8% to USD2.5m amidst higher tank storage leasing activities, while China National Aviation Fuel Pipeline Transportation’s contributions rose 74.2% to USD1.8m on higher volumes.

Other oil products witnessed a sharp jump. 

• Volumes for the trading of other oil products rose 154% to 6.9m tonnes in 1H16. 
• Earnings from this segment tend to be volatile and more risky vis-à-vis its jet fuel supply and trading businesses. CAO had reported losses in this segment over the last two years.

Analyst briefing at 4pm. 

• CAO will hold an analyst briefing today at 4pm. We place our rating and TP under review as we await updates on:
  1. The outlook for its other oil products trading business;
  2. Progress made by the management on potential inorganic growth opportunities.

Shekhar Jaiswal RHB Invest | http://www.rhbinvest.com.sg/ 2016-07-29

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 1.22 Same 1.22