CHINA AVIATION OIL(S) CORP LTD (SGX:G92)
China Aviation Oil - Recovery Delayed By Slow Reopening Of Borders
- China Aviation Oil's 1H2021 net earnings below expectations on steepening backwardation in crude oil market and sluggish resumption of international flights.
- Cut FY21/22F net profit estimates by 26%/13%.
- China Aviation Oil's valuation still undemanding at 8.2x FY22F P/E.
Disappointing 1H2021; cut target price to S$1.20
- China Aviation Oil (SGX:G92)'s 1H2021 net profit of US$24.3m (+3.1% y-o-y, -25.5% q-o-q) fell short of our estimates, forming only 30.5% of our full-year estimate. The underperformance during the period was largely attributable to an unfavourable trading environment (backwardation) for crude oil/oil and limited improvement in flight activity at Shanghai Pudong International Airport (SPIA).
Acute margin erosion due to protracted backwardation environment; SPIA dragged by slow reopening of borders.
- While total volume of oil products supplied in 1H2021 was on-par with pre-crisis levels (1H2019), the change in revenue mix (jet fuel volumes were still down by 38.7%, other oil products less middle distillates were up by 47.0%) and sustained backwardation in the market led to a significant drop in the gross profit per ton supplied to US$0.89/ton in 1H2021, down from US$1.60/ton and US$1.74/ton in 1H2020 and 2H2020 respectively.
- Contribution from SPIA was up significantly y-o-y (due to low base effect) but weaker by 17.0% on a sequential basis as international flight activity continued to be subdued at the airport.
- Balance sheet continues to be robust with net cash position of US284.8m, providing China Aviation Oil with ample firepower for M&A activity or even boosting shareholder distributions (dividends/share repurchases). The company highlighted that it is currently on the lookout for investment opportunities, but it remains to be seen if this will materialise due to China Aviation Oil’s patchy track record.
Cut FY21/22F net profit estimates; maintain BUY with lower target price of S$1.20.
- We are slashing our FY21/22F net profit projections for China Aviation Oil by 26%/13% to reflect core margin compression and a more gradual recovery trajectory at SPIA. The slow easing of international borders will continue to weigh on China Aviation Oil in the near-term, and we now expect its recovery to be pushed back to FY22F. Accordingly, we are cutting our target price for China Aviation Oil to S$1.20, to account for our negative earnings revision and as we roll forward our P/E peg to 11.0x (+1.0 standard deviations above five-year mean) blended FY21/22F earnings from 11x FY21F previously.
- See
Jason SUM CFA
DBS Group Research
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Paul YONG CFA
DBS Research
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https://www.dbsvickers.com/
2021-08-02
SGX Stock
Analyst Report
1.20
DOWN
1.380
