China Aviation Oil Singapore Corp - UOB Kay Hian 2019-03-01: 4Q18 Results In Line, Solid Performance Rounds Off The Year; Downgrade To HOLD

CHINA AVIATION OIL(S) CORP LTD (SGX:G92)

China Aviation Oil Singapore Corp - 4Q18: Results In Line, Solid Performance Rounds Off The Year; Downgrade To HOLD

China Aviation Oil reported 4Q18 net profit of US$18.7m (+23.9% y-o-y). Full-year net profit of US$93.9m (+10.5% y-o-y) came in 3.1% above our expectations. 4Q18 revenue grew 7.8% y-o-y to US$4.4b which flowed into gross profit.
With volatile oil prices and a weakening renminbi against the US$, we expect significant challenges in China Aviation Oil’s operating environment, hence we lower our 2019-20 earnings forecasts.
Downgrade to HOLD with a lower PE-based target price of S$1.25, pegged at 8.4x 2019F PE.

CHINA AVIATION OIL(S) CORP LTD (SGX:G92)’s 4Q18 net profit was in line with our expectations, leaping 23.9% y-o-y to US$18.7m.
Revenue increased 7.8% y-o-y to US$4.4b, driven by higher oil prices. Gross profit climbed 11.9% y-o-y, mainly attributed to higher profits from trading and optimisation activities as well as higher jet fuel volume supplied to China.

Other operating expenses turned positive to US$3.9m, mainly due to write-back of allowances to doubtful debt of US$4.2m.

In 4Q18, associates’ contribution declined 10.6% y-o-y, as weakness in SPIA dragged down stronger performances of other associates. Share of profits from SPIA decreased 13.1% y-o-y due to forex losses of US$8.6m.
Share of profits from other associates rose 64.4% y-o-y, mainly due to higher profits from OKYC’s tank storage leasing activities.

While Shanghai’s importance as a global business hub will translate into sustained contributions from SPIA, we note the renminbi weakness will likely take the shine off SPIA’s contribution to China Aviation Oil’s bottom line.
In addition, volatility in oil prices will introduce challenges to China Aviation Oil’s ability to sustain profitability at its trading business.

We reduce our 2019- 20 net profit forecasts to US$94.4m (-7.1%) and US$97.2m (-12.6%) respectively. We factor in lower revenue as a result of weaker trading revenue and lower share of profits from SPIA on a weaker renminbi.
Risks include sustained devaluation of the renminbi and volatility in oil prices resulting in lower contributions from SPIA.

Downgrade to HOLD with a lower target price of S$1.25, based on 8.4x 2019F PE, pegged at a 20% discount to peers’ average.
With volatile oil prices and a weakening renminbi against the US$, we expect significant challenges in China Aviation Oil’s operating environment. Entry price: S$1.10.

Yeo Hai Wei UOB Kay Hian Research | https://research.uobkayhian.com/ 2019-03-01

SGX Stock Analyst Report HOLD DOWNGRADE BUY 1.25 DOWN 1.930