China Aviation Oil Singapore Corp (CAO SP) - UOB Kay Hian 2017-04-20: 1Q17 Another Smooth Sailing Quarter

China Aviation Oil Singapore Corp (CAO SP) - UOB Kay Hian 2017-04-20: 1Q17 Another Smooth Sailing Quarter CHINA AVIATION OIL(S) CORP LTD G92.SI

China Aviation Oil Singapore Corp (CAO SP) - 1Q17 Another Smooth Sailing Quarter

  • As expected, the continued oil contango trend benefitted CAO as it delivered strong 1Q17 results slightly ahead of our expectations with higher gains from oil trading optimisation activities. 
  • The stellar performance from SPIA is expected to continue, though at a less pronounced rate if oil prices trend downwards. 
  • We raise our 2017/18 earnings forecasts slightly and introduce our estimate for 2019. 
  • Maintain BUY with target price raised to S$2.26 with a 2017 dividend yield of 3%.


Strong results slightly ahead of expectation. 

  • Powered by greater gains from its trading and optimisation activities, China Aviation Oil Singapore Corp (CAO) reported a 1Q17 PATMI of US$25.3m (+4.72% yoy). 
  • As expected, the continued oil contango trend had benefitted CAO. Also as mentioned previously, revenue for CAO is not meaningful (profits are based on a fixed fee x volume instead). and as such the 1Q17 revenue jump (+126.14% yoy) is a non-event. 
  • All in all, we believe the 1Q17 results are positive, considering the absence of the US$1.14m in monies recovered from MF Global in 1Q16.

Stellar performance from star associate continues. 

  • With higher refuelling volumes and rebounding oil prices, the group’s star associate, SPIA, continued to grow its contribution by 7.1% yoy from US$12.09m in 1Q16 to US$12.95m in 1Q17. 
  • Its second major associate, OKYC saw slightly profit decline from US$1.36m in 1Q16 to US$1.34m in 1Q17, mainly attributable to exchange losses, despite higher profit from its tank storage leasing activities and mark-to-market interest swap gains. Nonetheless, oil tank storage facilities were running at full capacity at the end of 1Q17.


SPIA will continue to contribute. 

  • In view of Shanghai’s importance as a global business hub and the likelihood of higher refuelling volumes, we expect SPIA to continue to generate strong recurring income for the group with a growth rate of around 7%. However, profit gains due from oil price increases may not be sustainable if oil prices do not continue to trend upwards. 
  • Nonetheless, we note the potential for future growth as the Shanghai airport builds a new terminal (aiming to be amongst the world’s top three busiest airports in 2019 and the general China’s civil aviation boom.


  • We have slightly raised our earnings growth forecasts for 2017/18 and introduce our 2019 forecast. We also reckon that there is significant upside risk to our estimates if the jet fuel contango market were to remain intact.
  • The risk of oil prices heading downwards and geopolitical risk (ie Korean peninsula) will also impact CAO and its associates.


  • Maintain BUY with target price raised to S$2.26 based on 14.4x 2017F PE, pegged at a 20% discount to peers’ average PE of 18x.


  • 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/ 2017-04-20
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 2.260 Up 2.210