CHINA AVIATION OIL(S) CORP LTD (SGX:G92)
China Aviation Oil - 1Q19: Held Back By Lower Average Oil Prices
- We deem China Aviation Oil's 1Q19 net profit of US$26.3m in line despite it falling 2.1% y-o-y, as it was largely driven by lower average oil prices which rebounded in 2Q19.
- 1Q19 net profit formed 27.7% of our/Bloomberg consensus (S$95.1m/S$95.3m) FY19F forecasts. The stock is still net cash.
- Maintain ADD and Target Price of S$1.70, based on unchanged 11.0x FY20F P/E, c.30% discount to peer average.
China Aviation Oil's EBIT saved by lower costs and higher interest income
- CHINA AVIATION OIL(S) CORP LTD (SGX:G92)'s 1Q19 revenue of US$3.7bn shrank 9.37% y-o-y on lower average oil prices (average Brent/WTI prices were down 5%/13% y-o-y) and a decrease in trading volumes of other oil products, especially fuel oil. This led to a 12% y-o-y fall in GP to US$11.6m and slightly lower gross profit margins of 0.31% (vs. 1Q18: 0.32%).
- Lower costs (i.e. staff and professional fees for business development) and higher interest income, however, mitigated the impact on operating profit, resulting in EBIT rising to US$8.8m (vs. 1Q18: US$8.5m).
- It is worthy to note that 1Q19’s middle distillates volumes increased 8.67% y-o-y.
Associate performance softens on weaker SPIA and OKYC
- 1Q19 associate earnings of US$19.1m were lower y-o-y (-8.8%) largely on weaker Shanghai Pudong International Airport Aviation Fuel Supply (SPIA) which saw contributions narrowing 8.9% y-o-y.
- China Aviation Oil guided this was mainly due to lower revenue with average oil prices in 1Q19 being lower than in 1Q18.
Balance sheet stays healthy – a positive
- As at end-1Q19, China Aviation Oil had a cash of US$379.2m and no borrowings leaving it in a cash position of 43.8 UScts/share. It still has ample balance sheet headroom to participate in acquisitions, in our view.
- China Aviation Oil had previously mentioned that it is always open to M&A opportunities to expand its global jet supply and trading network, complemented with trading in other products.
Maintain ADD and Target Price of S$1.70
- Crude oil prices have thus far recovered with Brent and WTI trading at US$75/bbl and US$66/bbl respectively. These could help future quarter results. We maintain our forecasts for now.
- We still see China Aviation Oil as a longer-term proxy for China’s growing outbound travel and like its healthy balance sheet.
- Maintain ADD and Target Price based on 11.0x FY20F P/E.
- Catalysts are higher product volumes and associate earnings. Downside risks include lower volumes, margins and associate earnings.
Cezzane SEE
CGS-CIMB Research
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https://research.itradecimb.com/
2019-04-25
SGX Stock
Analyst Report
1.700
SAME
1.700
