CHINA AVIATION OIL(S) CORP LTD (SGX:G92)
China Aviation Oil - 1Q20 Brief Financial Update Disappoints
- China Aviation Oil reported disappointing net profit for 1Q20. A slump in aviation traffic amidst COVID-19 and sharp oil price fall had impacted 1Q business operations.
- We see China Aviation Oil as a good proxy to Chinese aviation traffic, which we expect to improve in 2H20. Moreover, a strong net cash balance sheet enables China Aviation Oil to undertake large acquisitions.
- Nevertheless, we place our rating and Target Price under review pending further management updates.
Reason for disappointing 1Q20 financial performance.
- In a brief financial update, China Aviation Oil (SGX:G92) reported disappointing 1Q20 net profit of USD10.8m (-59% y-o-y, -49% q-o-q). This was due to significantly lower attributable profit of USD5.6m (-68% y-o-y, -58% q-o-q) from Shanghai Pudong International Airport Aviation Fuel Supply Company (SPIA), a 33%-owned associate company of China Aviation Oil. See China Aviation Oil Announcements. Historically, SPIA has accounted for c.65% of China Aviation Oil’s PBT.
- China Aviation Oil’s three other subsidiaries that have business operations in Hong Kong, US and Europe were also adversely affected by the COVID-19 pandemic. China Aviation Oil did not provide more details on 1Q20 performance as the group has switched to reporting its financial performance on a semi-annual basis.
- China Aviation Oil will report financial performance for the half-year ended 30 Jun 2020 on 30 Jul 2020.
How does this compare with our expectations?
- While we had anticipated weak 1H20 earnings, 1Q20 profit came in below our expectations. We were expecting China Aviation Oil to report 1Q20 earnings of USD15m (-40% y-o-y, -30% q-o-q) on the back of a USD10m contribution from SPIA (-42% y-o-y, -25% q-o-q) during the quarter.
Valuations are still compelling.
- China Aviation Oil is trading below its net tangible asset value per share of USD0.95 (c.SGD1.30) and at 6.9x 2020F P/E (ex-cash 2020 P/E of just 2.7x).
- 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.
Risks to our rating.
- Key downside risks to our rating and Target Price are losses at its trading business despite all the risk control measures, opening up of the Chinese aviation fuel market risking China Aviation Oil’s monopoly, and a higher-than-estimated aviation traffic decline in 2020.
Shekhar Jaiswal
RHB Securities Research
|
https://www.rhbinvest.com.sg/
2020-04-22
SGX Stock
Analyst Report
1.300
SAME
1.300
