RHB Group Research analyst Shekhar Jaiswal have remained positive on China Aviation Oil (CAO) as he keeps “buy” with an unchanged target price of $1.30 on the counter.
As the Labour Day holiday week approaches in China, Jaiswal says he expects a “sharp recovery” in the country’s domestic aviation traffic during the period compared to the Lunar New Year in February when the Chinese government discouraged domestic travel due to the rise in Covid-19 cases.
“The Civil Aviation Administration of China, in its April 16 press conference, noted that the upcoming Labour Day holiday week (which runs from May 1-5) will see a surge in demand, with airlines already reporting that their forward bookings have exceeded pre-pandemic numbers seen in 2019,” he writes
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Since early March, domestic flights in China have surpassed levels in both 2020 and 2019, notes the analyst.
According to the flight tracking website, Radarbox.com, China is now seeing more than 12,500 domestic flights a day.
During the last week of April, the seven-day average stood at 12,612 daily flights compared to the 4,939 daily flight average during the same period the year before.
In 2019, before Covid-19, the seven-day average stood at 9,949 daily flights.
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While potential sporadic outbreaks of Covid-19 cases could cause fluctuations in aviation travel demand, Jaiswal says he remains “optimistic on a sustained air traffic recovery in China for the rest of 2021.”
“[We] are forecasting a 20% rebound in jet fuel supply and trading volumes in 2021,” he adds.
Despite the 8% year-to-date (y-t-d) returns, CAO’s 10.8 times FY2021 price-to-earnings is below peers and implies only 0.5 times FY2021 price earnings growth (PEG), says Jaiswal.
“The company’s net cash position stands at USD269m, accounting for [around] 37% of its market cap. On an ex-cash basis, the stock is trading at a compelling 6.7 times FY2021 P/E.”
As at 3.51pm, shares in CAO are trading 1 cent lower or 0.9% down at $1.13.
