China Aviation Oil Singapore Corp - UOB Kay Hian 2018-08-02: 2Q18 Results Above Expectation Due To A Surge In Oil Trading Volumes

China Aviation Oil Singapore Corp - UOB Kay Hian Research 2018-08-02: 2q18 Results Above Expectation Due To A Surge In Oil Trading Volumes CHINA AVIATION OIL(S) CORP LTD SGX:G92

China Aviation Oil Singapore Corp - 2q18 Results Above Expectation Due To A Surge In Oil Trading Volumes

  • China Aviation Oil (CAO)’s 2Q18 earnings beat our expectations with net profit jumping 14.4% y-o-y, representing 32.0% of our full-year estimates. Net profit came in at US$29.3m, driven by stronger y-o-y sales growth of 57.9%. 
  • We remain cautiously optimistic of CAO’s future, given its strong fundamentals. 
  • Maintain BUY and a target price of S$2.05 (previously S$2.13), pegged at 13.5x 2018F PE, or a 20% discount to peer average of 16.9x.


2Q18 results above expectations.

  • China Aviation Oil Singapore Corp’s (CAO) 2Q18 earnings came above our expectations with net profit jumping 14.4% y-o-y. 
  • Revenue surged 57.9% y-o-y to US$5.8b, driven by higher trading volume and oil prices. Gross profit rose 55.1% y-o-y, mainly attributable to higher profits from trading and optimisation activities as well as higher jet fuel volume supplied to China.

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Associates continued to perform admirably.

  • In 2Q18, associate contribution edged up higher by 1.7% y-o-y, as weakness in SPIA was offset by broad-based improvements in TSN-PEKCL (+11.9%), CNAF HKR (+23.5%), and Xinyuan(+13.9%). 
  • Share of profits from SPIA decreased 2.59% y-o-y and is attributable to forex loss and higher operating profit from refuelling volume.


Fulfilling global ambitions, focusing on key competencies.

  • CAO’s acquisition of Navires Aviation Limited (NAL) gifts CAO concession rights to supply jet fuel at Schiphol as well as the ability to establish into-wing jet fuel supply systems at four European Airports. 
  • Coupled with the disposal of China Aviation Oil Xinyuan Petrochemicals Co. Ltd (CAOXP), management will be able to focus on CAO’s key competencies and allocate its resources efficiently. 
  • We note the corporate developments bring CAO a step closer to fulfilling its global ambition and to grow its revenue stream.

Sustained growth in SPIA...

  • Shanghai’s importance as a global business hub will translate to sustained contributions from CAO’s associate, SPIA. We note anticipated demand fuelled by China’s civil aviation boom has resulted in the addition of a new terminal due in 2019. 
  • We expect SPIA’s sales in renminbi terms to grow in tandem with the Shanghai Airport as it aims to be the top three busiest airports in the world.

…but weakening renminbi may impact contributions.

  • Beginning in mid-June, the renminbi’s slump had led to a depreciation of renminbi against US dollar by 6.4%. We think escalating trade rhetoric may give cause for the renminbi to stay low against the US dollar and introduce volatility in SPIA’s contributions.


  • We adjust our 2018-20 net profit to US$97.0m (+5.8%), US$107.1m (+5.3%) and US$116.4m (+4.7%) respectively. We have factored in a higher growth rate of trading volumes for the group while maintaining our estimates of associate contribution given foreign currency volatilities.
  • Risks include sustained devaluation of the renminbi and volatility in oil prices resulting in lower contributions from SPIA.


Maintain BUY with a lowered target price of S$2.05,

  • based on 13.5x 2018F PE, pegged at 20% discount to peers’ average. 
  • Despite an upward adjustment in earnings, our target price is lowered to take into account unfavourable foreign currency movements of the Singapore dollar against the US dollar.


  • Higher-than-expected oil trading volumes.
  • Better-than-anticipated performance by associates.
  • Acquisition of earnings-accretive fuel assets.

Yeo Hai Wei UOB Kay Hian Research | Andrew Chow CFA UOB Kay Hian | https://research.uobkayhian.com/ 2018-08-02
SGX Stock Analyst Report BUY Maintain BUY 2.05 Down 2.130