CHINA AVIATION OIL(S) CORP LTD (SGX:G92)
China Aviation Oil - Eventual Recovery, Compelling Valuation; BUY
- China Aviation Oil (SGX:G92)’s 1H21 earnings fell below estimates, amidst lower sales volumes and GPM from its ex-China jet fuel trading business.
- We cut FY21-23F earnings by 3-12%, as the recent spike in COVID-19 cases in China would cap further improvements in domestic aviation traffic, while the eventual recovery in international aviation traffic will now be only visible in 2022.
- Valuations remain compelling – China Aviation Oil is trading at 0.3x 2022F PEG, and at 4.7x 2022F P/E on an ex-cash basis.
- BUY, new S$1.20 target price from S$1.26, 18% upside with 2.5% FY21 yield.
China Aviation Oil's 1H21 results below expectations.
- China Aviation Oil’s 1H21 net profit stood at US$24.3m (+3% y-o-y), at ~40% of our full-year estimate. Revenue grew 62% y-o-y to US$8.68bn, due to oil price hikes and a 35% y-o-y rise in total supply and trading volume. However, gross profit fell 31% y-o-y amidst lower volume and a narrower GPM for jet fuel traded outside China.
- Its earnings growth was mainly driven by an increase in its share of earnings from associate companies, especially at Shanghai Pudong International Airport Aviation Fuel Supply Co (SPIA), which saw its profit contribution grow sixfold y-o-y to US$12.2m.
Significant recovery now pushed to 2022F.
- We lower 2020F profit by 12% as we now expect the significant recovery in China’s international aviation traffic to happen next year, once more countries manage to vaccinate a significant portion of their populations.
- In China, amidst a rise in COVID-19 cases, the 7-day traffic average for commercial flights has now dropped below 2019 and 2020 levels. We now expect 2H21 earnings grow by a modest 2% y-o-y, as we expect some improvement in GPM.
- While we now expect 2022 profit to grow by 32% y-o-y to US$76m, we maintain our view that a return to pre-pandemic earnings could take 2-3 years, in line with the anticipated recovery in global aviation traffic.
Inorganic growth discussion remains on the cards.
- With a healthy net cash position of US$284.8m, China Aviation Oil plans to continue to focus on seeking opportunities for expansion, through investments in synergetic and strategic oil-related assets and businesses.
2022F PEG remains compelling.
- Despite cutting our growth estimates, China Aviation Oil’s 2022F P/E is at 8.5x, which implies only 0.3x 2022F PEG. With its net cash position being equivalent to ~44% of its market cap, the stock is trading at a compelling 4.7x 2022F P/E on an ex-cash basis.
- We have rolled forward our target price, to be based on blended forward estimates vs 2021 forecast previously.
- See
Jarick Seet
RHB Securities Research
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https://www.rhbinvest.com.sg/
2021-08-04
SGX Stock
Analyst Report
1.20
DOWN
1.300
