China Aviation (Singapore) Oil - Phillip Securities 2019-03-05: Mixed Blessing

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

China Aviation (Singapore) Oil - Mixed Blessing

  • CHINA AVIATION OIL(S) CORP LTD (SGX:G92)'s 4Q18 revenue and net profit missed our expectations due to lower than expected supply and trading volumes and profits from Pudong.
  • Supply and trading margins improved. Total supply and trading volume shrank.
  • Pudong underperformed due to lower refuelling volumes and FX losses.
  • We adjust our FY19e EPS downward to 10.7 US cents (previously 11.2 US cents) due to the assumption of a decrease in profits from supply and trading business, offsetting the growth of profits from Pudong. Based on an unchanged average forward 12-month PER of 11.5x, we maintain our BUY call with a lower target price of S$1.67.



Positives


Supply and trading margin was better off.

  • Supply and trading margins, measured by gross profit/tonne, surged 34.5% y-o-y to US$1.37/tonne in 4Q18 (4Q17: US$1.02/tonne). This was attributable to the curb on non-profitable trading businesses.


Negatives


Supply and trading volume shrank.

  • Total supply and trading volumes declined in 4Q18. The shrinkage of the volume was due to the reduction of paper trading businesses which offset the increase in supply volume. Since both market risk and geopolitical risk protracted during the period, management continued to implement stringent risk control measures. Hence trading volume was down.

Pudong confronted to triple whammies:

  • China Aviation Oil's 4Q18 profit from Pudong was US$14.2mn (- 13.0% y-o-y) due to lower refuelling volumes, foreign exchange losses, and higher operating expenses.
  • During the period, refuelling volume dropped by 7.6% y-o-y to 1.2mn tonnes. This was partially impacted by the decrease in the rate of landing which resulted from more safety measures taken by the airport. 4Q18 RMB depreciated against USD by 4.5% y-o-y.


Outlook

  • The new management will focus on the bottom line growth instead of volume growth. With the global geopolitical risks and market uncertainties being escalating, China Aviation Oil will consolidate the supply business while reducing the scale of trading business. We expect the growth in air traffic in Pudong airport will resume. We expect China Aviation Oil’s performance to remain flat this year owing to an estimated decline in trading business offsetting a mild growth of profits from Pudong.


Maintain BUY with a lower Target Price of S$1.67

  • We adjust our FY19e EPS downward to 10.7 US cents (previously 11.2 US cents) due to a decline in profits from supply and trading business, offsetting the growth of profits from Pudong.
  • Based on an unchanged average forward 12-month PER of 11.5x, we maintain our BUY call with a lower target price of S$1.67.





Chen Guangzhi Phillip Securities Research | https://www.stocksbnb.com/ 2019-03-05
SGX Stock Analyst Report BUY MAINTAIN BUY 1.67 DOWN 1.760



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