On June 6, the Civil Administration of China reported that daily air passengers exceeded 1 million for the first time since Jan 28, and recovering to about 62% of 2019 levels. Daily air passengers and daily number of flights in the first five days of June 2020 reached 935,200 and 10,570 respectively, recovering to 57% and 66% of 2019 levels.
“If the current momentum of recovery in China’s aviation traffic is sustained, especially at Shanghai Pudong International Airport (SPA), CAO could report better earnings in 2020,” says Jaiswal.
Shanghai Pudong International Airport Aviation Fuel Supply (SPIA), the exclusive aircraft refuelling services provider at SPA that is 33% owned by CAO, and accounts for 65% of its PBT.
Meanwhile, the analyst views CAO’s monopolistic position in China and parent’s ambitions to grow business outside China as positive.
Last week, CAO’s parent, China National Aviation Fuel Group (CNAF), highlighted plans to expand its global presence over the next several years. CNAF’s chairman noted that it plans to use the strategic platform provided by its Singapore operations – CAO, the largest physical jet fuel trader in the Asia-Pacific region and the key supplier of imported jet fuel to China's civil aviation industry – to efficiently coordinate overseas resources to compete with other established foreign rivals.
“In addition, a strong net cash position (c.54% of its market cap) should enable CAO to undertake an earnings-accretive acquisition, thereby supporting its parent’s ambitions to grow business beyond China,” says Jaiswal.
Currently, the stock is trading below its net tangible asset value per share of 95 US cents ($1.30), and has a FY21 price-to-earnings ratio of 7.7 times, which is below peers that are trading between 11.0 time to 12.0 times.
As at 2.30pm, shares in CAO are trading at $1.04 or 0.8 times FY20 book with a dividend yield of 4.0%.
