China Aviation Oil Singapore Corp - UOB Kay Hian 2016-08-29: BUY On A Stellar 3Q16 And Beyond

China Aviation Oil Singapore Corp (CAO SP) - UOB Kay Hian 2016-08-29:  BUY On A Stellar 3Q16 And Beyond 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 BUY Maintain BUY 1.900 Same 1.900


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