China Aviation Oil - DBS Research 2018-11-02: 3Q18 Earnings Missed Expectations; Long Term Growth Outlook Intact

CHINA AVIATION OIL(S) CORP LTD (SGX:G92) | SGinvestors.io CHINA AVIATION OIL(S) CORP LTD (SGX:G92)

China Aviation Oil - 3Q18 Earnings Missed Expectations; Long Term Growth Outlook Intact

  • China Aviation Oil's 3Q18 net profit declined 8% y-o-y to US$18.9m against our expectation of 10% growth.
  • Weaker contributions from associates and higher provisions for credit losses led to the underperformance.
  • Valuation undemanding at 9.5x FY18F PE.
  • Maintain BUY, Target Price adjusted to S$1.90.



What’s New

  • China Aviation Oil's 3Q18 results were below our expectations due mainly to weaker than expected contributions from its associates. In particular, SPIA's contribution fell by 12.6% y-o-y to US$16.5m due to forex losses and higher operating expenses, while lower leasing fees at OKYC led to lower other associate income (-62% y-o-y) of US$1m.
  • Meanwhile, China Aviation Oil also saw higher finance costs and higher provisions for credit loss impairments (due to the adoption of SFRS(I) 9 from 1 Jan 2018 onwards). This was partially offset by higher trading profits from trading activities. As a result, net profit in the quarter fell by 8% y-o-y in the quarter to US$18.9m while we were expecting c. 10% growth.
  • Given the weaker than expected earnings growth in 3Q18 and potentially more forex losses at SPIA in 4Q18 with the weaker RMB, we lower our FY18F earnings by 4.3% to US$91.6m, and FY19F earnings by 3.7% to US$100.1m.
  • China Aviation Oil is trading at just 9.5x FY18F earnings, declining to 8.5x FY19 earnings, with a strong balance sheet that could fund inorganic growth. The structural growth story for China Aviation Oil remains intact as air travel in the region is still well positioned for long term expansion.
  • Maintain BUY with an adjusted Target Price of S$1.90 based on 13x FY18 PE.





Paul YONG CFA DBS Group Research | https://www.dbsvickers.com/ 2018-11-02
SGX Stock Analyst Report BUY MAINTAIN BUY 1.90 DOWN 1.980



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