CHINA AVIATION OIL(S) CORP LTD (SGX:G92)
China Aviation Oil - Golden Week Holidays Done, What Next?
- BUY China Aviation Oil (SGX:G92), new SGD1.15 Target Price from SGD1.05, 15% upside with c.5% FY20F yield, amidst expectations of continuing improvement in China’s aviation traffic following a strong rise in domestic aviation traffic during the Golden Week holidays.
- Also, a gradual but partial recovery in international aviation traffic in China, especially at Shanghai Pudong International Airport, during the later part of 2021 should support China Aviation Oil’s FY21F earnings growth.
- Despite the recent run-up of China Aviation Oil's share price, valuations remain compelling amidst expectations of c.30% profit growth in 2021.
Sep 2020 and Golden Week see a rise in domestic aviation traffic.
- According to a VariFlight report, China's civil aviation sector continued to recover in September, as flights in airports returned to more than 90% of the volume registered in the same period last year. Airports in China handled 375,300 outbound flights last month, down only 6.9% y-o-y, but up 1.6% m-o-m.
- According to the Civil Aviation Administration of China, during the Golden Week holidays, China saw 13.3m passenger trips as the average daily passenger traffic and average daily flight volume reached 91% and 90% of the same period last year.
Traffic recovery to be boosted by vaccine availability.
- China is well-positioned to extend its leadership in global aviation traffic recovery, as it manages to keep COVID-19 under control. A news report last month referenced comments from Wu Guizhen, chief bio-safety expert at the Chinese Center For Disease Control and Prevention, that COVID-19 vaccine shots will be ready for public use as early as November or December in China. This is as final-stage clinical trials of several vaccine candidates have progressed very smoothly.
- An effective vaccine development could significantly improve travel sentiment – not only in China, but also in the region.
Trading below peer valuation and at a compelling 2021F PEG.
- China Aviation Oil's share price has moved up by 7.5% in last month, and has outperformed the STI by 4.4%. Despite the rise in share price, its 2021F P/E of 9.3x is below the range of multiples of its global jet fuel-supplying peers, and implies only 0.3x 2021F PEG.
- China Aviation Oil has a zero debt balance sheet with a net cash position of USD406.7m, which is equivalent to c.64% of its market cap. On an ex-cash basis, the stock is trading at a compelling 3.3x 2021F P/E.
- 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.
- Key downside risks are a delay in international aviation traffic recovery, or a reversal of the sharp improvement in China’s domestic aviation traffic due to the resurgence of COVID-19 infections.
Shekhar Jaiswal
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-10-14
SGX Stock
Analyst Report
1.15
UP
0.950
