SINGAPORE (July 28): RHB continues to rate China Aviation Oil (CAO) a “buy” with a target price of $1.90, as the group continues to show growth despite the volatility in oil prices.
In 2Q17, CAO showed an “unexciting” increase of 2% y-o-y in middle distillates sales volume growth, but the jet fuel trading and supply volumes that a under the same business segment saw a 7% growth y-o-y to 4 million tonnes.
See: China Aviation Oil 2Q earnings up 4% at $33.4 mil on higher revenue
In a Friday report, analyst Shekhar Jaiswal says, “We reiterate that as a monopoly supplier of imported jet fuel into China, CAO remains a direct proxy to rapidly-growing outbound aviation traffic from China to rest of the world.”
As the Chinese international passenger traffic is showing double digit growth, the analyst is optimistic of CAO’s jet fuel supply volumes growing 8-15% over 2017-2019.
The group saw a 12% y-o-y decline in its trading volume for other oil products to 34 million tonnes, but this is still registered as its seventh profitable quarter in 2Q17.
CAO says the 7% y-o-y increase in its total gross profit was attributed to higher profits from other oil products trading business and optimisation activities.
Due to lower profit contributions from the Shanghai Pudong International Airport Aviation Fuel Supply Company, the group’s associates reported a 5.5% dip y-o-y in its share of profits to US$418.3 million ($569.3 million) for 2Q17.
CAO indicated that excluding the forex translation impact, where the CNY weakened against the USD, the earnings contribution from Shanghai Pudong would have increased by double digits.
“Despite the post-results weakness in share price, which we believe was from some profit-taking, we remain bullish on CAO’s share price outlook as it remains on track to deliver steady earnings growth and higher dividend yields,” says Jaiswal.
Shares of CAO are trading 1 cent lower at $1.66 as at 10.16am.
