In a Friday report, analyst Shekhar Jaiswal notes that CAO’s sharp recovery in share price -- having delivered 29% returns in 2019 and outperforming the Straits Times Index (STI) by 25% -- has brought the stock’s forward P/BV, P/E and dividend yield close to their respective three-year average values.
As such, analyst has raised 2019-2020 profit estimates by 3% and introduced 2021 estimates.
Jaiswal however believes a further-rerating would require a stronger recovery in earnings -- aided by higher jet fuel supply volumes at Shanghai Pudong International Airport Aviation Fuel Supply Company (SPIA), CAO’s 33%-owned associate, on top of better-than-estimated margins for the group’s core jet fuel supply and trading business.
“Growth in volume for supply of jet fuel into China (a cost plus business); higher profit contribution from SPIA; and small but maiden full year contribution from recently acquired European business should support 2.5% profit growth in 2019F,” says Jaiswal.
“Our discussion with CAO seems to suggest that the new management team has aligned its focus on achieving profitability over registering volume growth, and growing external business – i.e. reducing dependence on its sister concerns to support an increase in jet fuel supply and trading volumes,” he adds.
Shares in CAO last traded 2 cents lower at $1.35 before the midday trading break, which is at 1.08 times FY19F book value.
