China Aviation Oil - DBS Research 2020-02-26: Attractive At Less Than 3x Ex-Cash FY20 PE

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






Paul YONG CFA DBS Group Research | https://www.dbsvickers.com/ 2020-02-26
SGX Stock Analyst Report BUY MAINTAIN BUY 1.65 DOWN 1.85



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