CHINA AVIATION OIL(S) CORP LTD
G92.SI
China Aviation Oil Singapore Corp (CAO SP) - BUY On A Stellar 3Q16 And Beyond
- We believe the latest price correction for CAO presents a buying opportunity for those who missed the last boat as industry numbers look positive with China’s 1H16 international flight passengers increasing 27% and 2H16 travel bookings growth.
- Shanghai International Airport July data also look affirmative and we are confident of a stellar 3Q16 in view of the Jul-Aug 16 summer holidays.
- Maintain BUY and target price of S$1.90.
WHAT’S NEW
Healthy correction presents buying opportunity.
- China Aviation Oil Singapore Corp (CAO) experienced a bout of profit-taking recently which presents buying opportunities for those who missed the last boat.
- We checked its fundamentals with multiple channels which showed that nothing much has changed. The latest growth figures support our confidence in the stock.
1H16 international flight passenger volume increased 27% yoy.
- According to the Civil Aviation Administration of China (CAAC), China's civil aviation industry realised a total turnover volume of 45.59b tonne-km in 1H16, up 12.5% yoy with 232.3m passengers transported (+10.8% yoy). The number of passengers travelling on international flights increased 27% yoy compared with 9.1% for domestic flights.
2H16 travel bookings outlook positive.
- According to TravelSky (China’s largest air ticketing system) forward booking system, 2H16 traveling booking outlook appears strong for key destinations besides HK/Macau with bookings for countries like Korea (+67-196% yoy), US (+22%-114%), Europe (12%-80%), Japan (+3-79% yoy) growing significantly.
Affirmative July data from Shanghai International Airport.
- For its SPIA associate, data from Shanghai International Airport indicates that July data was also affirmative with overall plane movement growing 9.72% yoy.
- International plane movements, in particular, grew faster at a 19.46% yoy growth rate. This is in line with our expectations of a trend where international flights grow faster than domestic flights in China.
STOCK IMPACT
Confident of a stellar 3Q16.
- Assuming no major changes in oil prices, we are confident of CAO delivering a stellar set of 3Q16 results.
- General July growth numbers for the industry look positive and we believe it will only get better with the July and August summer holidays.
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 future 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/
2016-08-29
UOB Kay Hian
SGX Stock
Analyst Report
1.900
Same
1.900
