(See also: China Aviation Oil posts 4.7% rise in 1Q earnings to $35.4 mil)
SPIA was still the main contributor at US$12.9 million, accounting for 87% of the share of associates and JV. However, TCN-PEKCL’s profits of US$0.78 million versus a loss of US$0.34 million in 4Q16 also provided strength to 1Q17 associate contribution.
As at 1Q17, CAO had a net cash position of 26.1 US cents/share. CIMB says CAO is open to M&A opportunities, but it is selective. “In our view, it is highly likely to opt for strategic assets i.e. SPIA, or assets that give it more access to aviation hubs. In any case, the net cash position accords it financial flexibility to consider such opportunities,” says Cezzane See in a Thursday report.
See likes CAO’s imported jet fuel supply monopoly, which makes it a proxy for China’s growing outbound travel. CAO’s global footprint is also expanding, having gained access to Los Angeles International Airport and Hong Kong International Airport. Then there is its 39% stake in the exclusive fuel supplier for Shanghai Pudong Airport.
“The stock currently trades at a CY18F P/E of 9.6x, c.40% discount to the global peer average of 15.6x, and a CY18F P/E of 7.5x once the current net cash position of 26.1 US cents is stripped out,” adds the analyst.
Downside risks to DBS’s call are weaker-than-expected volume growth in jet fuel and other fuels; lower margins due to lower trading optimisation activities; and lower earnings from associates.
Shares of CAO are up 2 cents at $1.65.
