China Aviation Oil - CIMB Research 2017-02-24: 4Q16 Smashing records again

China Aviation Oil - CIMB Research 2017-02-24: 4Q16: Smashing records again CHINA AVIATION OIL(S) CORP LTD G92.SI

China Aviation Oil - 4Q16: Smashing records again

  • FY16 net profit of US$88.9m beat our/consensus estimates by 110%/107% on the better-than-expected contribution from SPIA.
  • FY16 net profit smashed records with yoy growth of 45% on higher volumes handled (yoy +61.5%) and stellar associate earnings (yoy +96.7%).
  • 4.5 Scts DPS announced, as CAO adheres to 30% payout policy.
  • Maintain Add with higher TP of S$2.28 based on 13x PER on upgraded FY18 EPS.

Associate contribution trumps 4Q16 expectations 

  • As expected, 4Q16 was seasonally weaker as net profit narrowed 25.7% qoq. However, better associate and JV contributions of US$13.3m (due to higher ASP/metric tonne for SPIA) trumped our US$4.9m 4Q16 estimates leading to overall better FY16 net profit of US$88.9m (vs. our US$80.7m). 
  • FY16 net profit smashed records with yoy growth of 45% on higher volumes handled (yoy +61.5%) and stellar associate earnings (yoy +96.7%).

Continued volume growth 

  • Middle distillates and other fuels volumes rose 41.8%/98.2%, respectively. 
  • Jet fuel supply and trading benefitted from baseline China outbound aviation growth and increasing international airport network (currently 43 airports) served. 
  • Other oil product volumes soared, mainly on the expansion of crude oil and fuel oil trading to China and the Middle East, respectively. 
  • Management sees jet fuel growth continuing, but other fuels could take a breather in FY17 due to the high base effect.

SPIA continues to be the jewel in associate contributions 

  • SPIA accounted for 91% of FY16 associate earnings and grew on the back of higher refueling volumes (FY16: 4.1m; FY15: 3.8m metric tonnes) and inventory gains on jet fuel price rebound. The Shanghai Pudong airport is slated for further capacity enhancement come end-2017 and 2019F. 
  • CAO strongly believes in continued growth for SPIA, given that it is one of the busiest airports in China.

Committed to 30% dividend payout 

  • CAO declared a 4.5 Scts DPS for FY16, as it stays committed to the 30% dividend payout policy. 
  • Moving ahead, assuming stellar net profit growth, we believe CAO could pay FY17-18 dividends of US$29.7m-31.4m.

Still in net cash position 

  • One of the reasons we were drawn to CAO was its healthy balance sheet. As at FY16 it boasts a cash pile of US$287.3m. 
  • As mentioned previously, this cash has been earmarked for potential M&As which was purportedly to help CAO reach a net profit of US$110m by 2020F. 
  • We upgrade FY17-18F EPS on the back of higher volume growth for both the Middle East and Other Fuels division, and further increases in SPIA numbers. We introduce FY19 estimates.

Maintain Add, with higher target price of S$2.28 

  • FY16’s record net profit of US$88.9m is a testament to CAO’s growth prospects. We also like the stock for its healthy balance sheet. 
  • We continue to ascribe a target CY18F PER of 13x (c.20% discount to peer average), and upgrade our target price to S$2.28 (from S$2.00) on the back of upgraded estimates. Stay Add. 
  • Risks to our call are weaker-than-expected volume growth and earnings from associates.

Cezzane SEE CIMB Research | LIM Siew Khee CIMB Research | http://research.itradecimb.com/ 2017-02-24
CIMB Research SGX Stock Analyst Report BUY Maintain BUY 2.28 Up 2.000