SINGAPORE (Nov 6): Phillip Capital is maintaining its “buy” call on China Aviation Oil (CAO) with a target price of $2.00 based on slightly lower average forward price-to-earnings (PE) and estimated appreciation of USD.
The group on Thursday announced its 3Q17 earnings, posting a 7.7% decline in earnings to US21.4 million ($29.2 million), driven mainly by lower gross profits from lower gains from trading and optimisation activities.
This came despite an increase in revenue of 32.6% to US$5.2 billion, due to increase in trading volume and oil prices.
In line with the increase in revenue, cost of sales also increased 32.8% to US$5.2 billion.
See: China Aviation Oil’s 3Q revenue up but earnings down 8%
Meanwhile, the group managed to achieve a new high for profits from associates, increasing 10.4% y-o-y to US$21.5 million, surpassing last year record high, attributed to contribution from Pudong in 3Q17.
The strong performance in 3Q17 offset the slight drop in the previous quarter, resulting in a 3.2% y-o-y increase to US54.8 million in 9M17.
However, gross profit for the period saw a substantial 58.3% y-o-y drop to US$4.3 million.
This was due to a backwardation on jet fuel market as well as the hurricane season and fire at PetroChina Dalian refinery.
In a Monday report, analyst Chen Guangzhi says, “It is worth noting that the force majeure such as weather and accidents occurred in 3Q17 is a non-recurring factor that only negatively impacts on the short-term operation.”
In the backwardation market, the analyst expects CAO’s trading margin to be lower.
Since the group is continuing to expand the global deployment and product mix to ramp up trading volume, it still manages to grow profits.
On the other hand, profits from associates, the key bottomline driver, still has more room to grow since Pudong will be benefited from an uptick in air traffic in Pudong International Airport, especially with the upcoming operation of the fifth runway by the end of this year.
“We remain optimistic on CAO’s outlook and steady business portfolio,” says Chen.
As at 3.01pm, shares in CAO are trading 2 cents lower at $1.65 or 1.8 times FY17 book with a dividend yield of 1%.
