CHINA AVIATION OIL(S) CORP LTD (SGX:G92)
China Aviation Oil - More Positive News Flow; Reiterate BUY
- Year-to-date flight traffic at the Shanghai Pudong International Airport (SPA) is already running ahead of our expectations. We maintain that in addition to a full recovery in domestic aviation traffic, a gradual but partial recovery in China’s 2H21 international aviation traffic will support 2021F earnings growth.
- We raise China Aviation Oil's 2020-2022F earnings forecast by 2-4%. Despite the strong share price performance, valuations remain compelling.
- BUY, new S$1.25 target price from S$1.15, 16% upside with c.4% FY20F yield, amidst expectations of continued improvement in China’s aviation traffic in 2021.
YTD aircrafts handled at SPA ahead of expectations.
- According to data released by SPA, the airport has handled c.270k aircraft movements this year till October, thanks to a strong improvement in domestic aviation traffic. Monthly domestic aircraft movements at the airport are now running above pre-COVID-19 levels.
- Annualising the year-to-date traffic would imply that SPA will handle c.325k aircraft movements in 2020. This, although 58% lower y-o-y, is still higher than our previous estimate of c.285k. Shanghai Pudong International Airport Aviation Fuel Supply Company (SPIA), which is the sole jet fuelling service provider at SPA, should see better-than-expected jet fuel volumes for 2H20. SPIA, a 33%-owned associate of China Aviation Oil (SGX:G92), accounts for 65% of the latter’s PBT.
Anticipating strong jet fuel demand recovery.
- A recent Bloomberg report suggested that while the Lunar New Year is over two months away, China Aviation Oil is already gearing up for an expected surge in air travel.
- China Aviation Oil, which is one of the largest buyers of jet fuel in Asia, is seeking to import c.25k tonnes of jet fuel for Jan 2021 delivery – its first buy tender since May. While overall jet fuel import volumes in China are expected to remain below 2019’s levels, traders are expecting a rise in Chinese jet fuel imports ahead of the Lunar New Year holidays.
- We maintain that China, which has managed to keep COVID-19 under control within the country, could see a strong revival in international aviation traffic once an effective vaccine is made widely available in 2H21.
CAO trading below peer valuation and at compelling 2021F PEG.
- China Aviation Oil's share price has moved up 17.4% in last month, and outperformed the STI by 1.3%. Despite this, its 2021F P/E of 9.8x is below the range of multiples of its global jet fuel-supplying peers, and implies only 0.3x 2021F PEG.
- China Aviation Oil’s net cash position of USD406.7m is equivalent to c.59% of its market cap. On an ex-cash basis, the stock is trading at a compelling 4.0x 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: A delay in international aviation traffic recovery, and 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/
2020-12-02
SGX Stock
Analyst Report
1.250
UP
1.150
