China Aviation Oil - CGS-CIMB Research 2021-03-02: Awaiting Updated Flight Plans


China Aviation Oil - Awaiting Updated Flight Plans

  • China Aviation Oil's FY20 results were weaker y-o-y but still ahead at 114.4%/107.9% of our/Bloomberg’s FY20 forecast due to strong associate contribution in 2H20.
  • We have conservatively assumed China Aviation Oil's FY21-23F net profit may not recover to FY19 levels as international borders remain closed.
  • Reiterate HOLD on China Aviation Oil with a higher target price as we lift our target P/E to 10x (from 8.5x); close to 2016-2020’s average mean and roll forward to FY22F financial forecast.

China Aviation Oil reported weak FY20 net profit as expected; slightly stronger 2H20 observed

  • China Aviation Oil (SGX:G92)'s 2H20 revenue declined 51.7% y-o-y on the back of dampened revenue from middle distillates (US$2.4bn, -66.9% y-o-y) and other oil products (US$2.8bn, -20.3% y-o-y). 2H20 share of profits from associates (~US$21m) was down 23.3% y-o-y due to lower contribution from SPIA (~US$18m, -28.4% y-o-y) as a result of lower refueling volume and oil prices. As a result, 2H20 net profit came in at US$33m, a 27.6% decline y-o-y (2H19: US$45m).
  • China Aviation Oil's FY20 revenue of US$11bn was down 48.3% from FY19’s topline of US$20bn as supply and trading volume recorded a 25.2% decline y-o-y to 27.6m tonnes (FY19: 37m tonnes), largely attributed to the adverse impact of the COVID-19 pandemic.
  • Net profit for the year came in at US$56m, 43.7% lower y-o-y and 14.4% higher than our estimate of US$49m.
  • A final dividend of S$0.0258 per share was announced, close to our dividend payout expectations.

Lower operating cash flow observed, but still in a net cash position

  • Net cash used in operating activities for FY20 came in at US$166m, lower than the positive operating cash flow of U$50m generated in FY19. This was attributable mainly to higher utilisation of funds for trading requirements. Despite this, China Aviation Oil’s cash balance remains relatively healthy at US$269.1m (FY19: U$378.8m).
  • Management guided that it is still looking for accretive M&A opportunities in FY21F/22F, and given its unencumbered balance sheet, we think China Aviation Oil has sufficient dry powder for such purposes.

Raise China Aviation Oil's FY21-22F earnings forecast slightly

  • We raise our China Aviation Oil's FY21-22F forecasts slightly due to some housekeeping; however, we conservatively assume FY21-22F would still be below FY19’s net profit of US$99.8m as we project a slow recovery in international travel, and thus China Aviation Oil’s earnings. We also introduce our FY23F forecasts.

Reiterate HOLD; awaiting recovery in aviation volumes

Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2021-03-02
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.17 UP 0.870