Nevertheless, it was a quarter to forget for CAO as profits were below expectations in 1H2020. Revenue for 1H2020 fell 44.5% y-o-y despite better margins from CAO’s trading optimisation activities successfully mitigating gross profit shrinkage to 20.3% y-o-y.
Yet, this was unable to prevent a 89.9% yoy decline in associate earnings to US$3.9m from US$38.3m in 1H2019. This was largely due to a 93.8% y-o-y fall in Shanghai Pudong International Airport Aviation Fuel Supply’s (SPIA) associate contributions to US$2.1m. Consequently, CAO’s 1H2020 net profit was pulled down by 57% y-o-y.
China appears to be slowly opening its borders, with Beijing reopening visa applications from certain European countries in August. Still, a full recovery in international travel would only happen in FY2021 at best, slowing down CAO’s recovery. “We cut our FY2020-22F earnings per share by 20.3-22.2%,” she adds, lowering associate contributions from SPIA by 66.9%, 34%, 33.8% respectively in FY2020, FY2021, FY2022.
Investors, however, should continue to “hold” the stock, advises See. Nevertheless, she prices in a discount as earnings recovery could be slow and uneven while the current writof summons also puts a negative bias on near-term sentiment. While swifter recovery of international travel and a less uncertain oil markets are pluses for CAO, the counter could be weakened by prolonged Covid-19 impact and lower dividends, which has fallen from December 2019’s 5.49% to an estimated 2.68% by December 2020 and 3.6% in December 2021.
As of 1.21pm, CAO is trading at $0.86 with a dividend yield of 5.43%. Price-to-earnings (P/E) ratio is 7.95.
