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China Aviation Oil - RHB Invest 2020-08-13: Aviation Traffic Recovery Delayed; Now NEUTRAL

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

China Aviation Oil - Aviation Traffic Recovery Delayed; Now NEUTRAL

  • We lower China Aviation Oil (SGX:G92)'s 2020F-2022F profit by 26%-27% to account for a delay in China’s aviation traffic recovery.
  • While China’s domestic aviation traffic continues to register m-o-m improvement, the resurgence of COVID-19 infections will push international traffic recovery to 2021. This would impact earnings for Shanghai Pudong International Airport Aviation Fuel Supply (SPIA), which accounted for 65% of China Aviation Oil’s 2019 PBT.
  • While valuations remain compelling, we now prefer to wait for clear signs of traffic recovery.



Aviation traffic in China continues to improve sequentially.

  • Although China is still witnessing y-o-y decline in passenger aviation traffic, it has seen a sharp m-o-m passenger traffic revival since the low of Feb 2020. Amidst COVID-19, China’s passenger aviation traffic had declined to 8.3m in February from 50.6m in January.
  • Since February, passenger aviation traffic has improved each month, reaching 36.9m in July. Much of this improvement has been driven by the revival in domestic air travel.


International aviation traffic recovery to be delayed.

  • SPIA, the exclusive aircraft refuelling service provider at Shanghai Pudong Airport (SPA), is China Aviation Oil’s 33%-owned associate. At SPA, domestic aircraft movements have increased to c.16k in June from the low of c.7k in February. This compares with an average monthly domestic aircraft movement of c.22k in 2019.
  • For international traffic, aircraft movement has remained unchanged since February, at c.7k vs a c17k monthly average in 2019. We note that the average number of passengers per international flight at SPA in 2Q20 was less than 10, implying near-term downside risks to international aircraft movements at SPA.


Strong cash position.



Compelling valuations; waiting for signs of traffic recovery.






Shekhar Jaiswal RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-08-13
SGX Stock Analyst Report NEUTRAL DOWNGRADE BUY 0.95 DOWN 1.250



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