CHINA AVIATION OIL(S) CORP LTD (SGX:G92)
China Aviation Oil - China’s Aviation Traffic Continues To Improve
- We remain confident of China Aviation Oil (SGX:G92)’s return to earnings growth in 2021F. Amidst a gradual resumption of international flights and sustained recovery in domestic aviation traffic at Shanghai Pudong Airport, it could report decent earnings in 2020.
- The recent sharp rise in China’s jet fuel imports should also be positive for China Aviation Oil’s cost-plus jet fuel supply business.
- China Aviation Oil is trading below its net tangible assets per share (NTA/share) of USD0.95 (c.SGD1.30) and ex-cash 2021F P/E of just 2.7x.
China’s domestic air traffic continues to see recovery
- China’s domestic air traffic continues to see recovery amidst nationwide efforts to resume work and aggressive fare promotions offered by airlines.
- Based on data provided by official sources, the passenger traffic in China increased 16% and 40% m-o-m in April and May. Preliminary estimates for June were included in a news report, which indicated that 75% of China’s scheduled domestic flights were operated in June. Total flight landings and take offs in China increased 19% m-o-m and there was a 3.2% m-o-m increase in airline’s passenger load factor in June.
SPA to see improvement in international traffic.
- Based on information provided by the Shanghai Pudong Airport (SPA), the monthly flights handled by the airport increased 16% and 40% m-o-m in April and May, aided by a rising domestic traffic. The US-based airlines have also recently announced plans to resume flights to SPA. United Airlines plans to resume services between San Francisco and Shanghai, with twice-weekly flights starting from 8 July. Delta Air Lines has already resumed flights between Seattle and Shanghai from late June.
- With domestic traffic expected to improve further in 3Q20, an increase in international traffic should translate into higher jet fuel volumes pumped by Shanghai Pudong International Airport Aviation Fuel Supply Co. (SPIA) in 2H20. SPIA, which is 33% owned by China Aviation Oil, is the exclusive aircraft refuelling services provider at SPA and also it accounts for 65% of China Aviation Oil’s PBT.
1H20 financial results by end-July.
- We adjust 2020 earnings by 2% to account for 1Q20 jet fuel volume data for SPIA that was provided by China Aviation Oil in its 2019 AGM notes.
- China Aviation Oil will announce is 1H20 financial results on 30 Jul 2020 and we expect it to report USD22m-28m of net profit for 1H20.
Trading below its NTA and compelling 2021F P/E.
- China Aviation Oil’s 2021F P/E of 6.8x is below the range of multiples of its global jet fuel supplying peers, which are trading between 9.4x and 11.8x FY21F P/E.
- Accounting for its strong net cash position (c.60% of its market cap), China Aviation Oil is trading at 2.7x 2021F P/E on an ex-cash basis. Maintain BUY and SGD1.25 Target Price, 23% upside and 4.5% 2020F yield.
- 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.
- Resurgence in COVID-19 infections remains the key near term risk as it could derail China Aviation Oil’s 2H20 earnings potential.
Shekhar Jaiswal
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-07-06
SGX Stock
Analyst Report
1.250
SAME
1.250
