SINGAPORE (May 10): China Aviation Oil (CAO) yesterday announced that its 1Q18 earnings have increased by 13.9% y-o-y to US$26.91 million ($36.1 million) from a year ago, mainly contributed by a higher share of results from its associated companies.
Correspondingly, earnings per share came in at 3.13 US cents in 1Q18 versus 2.75 US cents in 1Q17.
Due to higher oil prices, revenue for the quarter increased 23.9% to US$4.10 billion from US$3.31 billion a year ago.
The total supply and trading volume also increased by 4.40% to 7.59 million tonnes, compared to 7.27 million tonnes in 1Q17.
See: China Aviation Oil reports 13.9% rise in 1Q18 earnings to $36.1 mil on higher share of results from associates
Following the results announcement, CGS-CIMB Research is maintaining its “add” call on CAO with a target price of $2.03.
In a Wednesday report, analyst Cezanne See says. “Overall, gross profit (GP) of $13.2 million was down 14.6% y-o-y largely due to the backwardation environment for jet fuel which is the main driver of gross profit margins (GPM), in our view.”
The group also saw stellar associate performance, which was driven by growth from its 33%-owned associate, Shanghai Pudong International Airport Aviation Fuel Supply Company (SPIA), as well as Oilhub Korea Yeosu (OKYC). This drove the 14.4% y-o-y core net profit growth in 1Q18.
At a net cash position of 19.8 US cents per share at end-1Q18, the analyst believes that the group has ample balance sheet headroom to participate in acquisitions.
The group also highlighted in end-2017 that it is seeking synergistic mergers and acquisitions (M&A) opportunities as it intends to expand its global jet supply and trading network, complemented with trading in other products.
“Overall, we still like CAO as a proxy for China’s growing outbound travel, and its expanding international footprint and healthy balance sheet,” says See.
RHB Research is also reiterating its “buy” recommendation on CAO with a target price of $1.80.
Volumes for supply and trading of jet fuel in China declined 14% y-o-y during the quarter to 3.3 million tonnes.
In a Thursday report, analyst Shekhar Jaiswal says, “However, based on our discussion with CAO, we understand that the business of jet fuel supply into Chinese aviation traffic, which operates on a cost-plus fixed USD per tonne margin, registered mid-teens growth in volume for 1Q18.”
Based on estimates from the research house’s business model, the analyst has assessed that the group’s Other Oil Products segment has remained profitable for 10 consecutive quarters and that gross profit for this segment could have improved significantly, on the back of a 23% growth in volumes and better product mix in the trading portfolio.
“We believe that the strong set of results will help in building investor confidence in the stock and lead to a reversal of its recent share price weakness. We remain bullish on CAO’s share price outlook, as it is still on track to deliver steady earnings growth in 2018 after a weak 2017,” says Jaiswal.
Similarly, UOB Kay Hian is keeping its “buy” call on CAO with a target price of $2.13.
While oil prices continue to trend upwards, the market remains extremely volatile with geopolitical factors such as the US pulling out of the Iran deal.
In a Thursday report, analyst Edison Chen says, “We are cautiously optimistic for CAO in 2018 but continue to assume lower gains for trading and optimisation activities. We expect the SPIA associate to continue to generate strong recurring income for the group with long-term growth rates around 7% (in renminbi terms) amidst strong fundamentals and a China civil aviation boom.”
As at 11.55am, shares in CAO are trading 3 cents higher at $1.59 or 1.28 times FY18 book with a dividend yield of 2.75%.
