CHINA AVIATION OIL(S) CORP LTD (SGX:G92)
China Aviation Oil - Attractive At < 3x Ex-Cash FY20 PE
- Record FY19 earnings of US$100m on both higher volumes and margins, offset by lower associate earnings.
- Better margins and cost control to help mitigate lower volumes from COVID-19 outbreak in 2020.
- Valuations are very attractive at less than 3x FY20 ex-cash PE and a decent dividend yield of 4.3%.
Maintain BUY with Target Price of S$1.65.
- China Aviation Oil (SGX:G92) posted strong core results as operating profit rose by 32% y-o-y on higher volumes and margins, though this was partially offset by lower associate contributions.
- We continue to like China Aviation Oil as 80% of its earnings are monopolistic, given its position as the sole importer of bonded jet fuel into China and its 33% stake in the only jet refueller at Shanghai Pudong International Airport.
- Current valuation at less than 3x FY20 ex-cash PE is very attractive, in our opinion.
Record FY19 earnings, resilient FY20 outlook
- China Aviation Oil's FY19 earnings improved 6% y-o-y to US$100m: Boosted by a 22% jump in middle distillates volume to 22.3m tonnes as well as a 3% increase in profit per tonne, China Aviation Oil’s gross profit rose by 17% y-o-y to US$58.5m, which is a record level.
- With operating expenses largely flat, operating profit jumped 32% y-o-y to US$43.6m. However, contribution from key associate SPIA fell by nearly 10% y-o-y to US$58.8m on lower profit margins causing pretax earnings to improve by only 6% y-o-y to US$106.4m.
- A final dividend of 4.7 Scts was declared, vs 4.5 Scts last year.
Strong balance sheet as net cash improves to US$375m:
- China Aviation Oil’s asset-light business model continued to see its net cash position improve, growing by 5% y-o-y to US$375m, representing 52% of its market capitalisation. This puts the company in a strong position to look for earnings-accretive acquisitions, especially in the current uncertain environment of slower economic growth and the COVID-19 outbreak.
Resilient FY20 outlook.
- While demand for jet fuel and other oil products will definitely impact China Aviation Oil’s volumes in the first half of 2020, we believe that stringent cost control as well as better margins from trading optimisation and integration will help the company’s earnings stay resilient in 2020.
- In the longer term, we continue to like the company as a proxy for the structural growth story of China’s civil aviation sector, as well as China Aviation Oil’s expansion in the international market.
- See China Aviation Oil Share Price; China Aviation Oil Target Price; China Aviation Oil Analyst Reports; China Aviation Oil Dividend History; China Aviation Oil Announcements; China Aviation Oil Latest News.
Paul YONG CFA
DBS Group Research
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https://www.dbsvickers.com/
2020-02-26
SGX Stock
Analyst Report
1.65
DOWN
1.85
