SINGAPORE (June 9): CIMB is maintaining its “add” on China Aviation Oil (CAO) given its prime position in key global aviation markets and its healthy balance sheet.
CIMB however has lowered its target price to $2.20 from $2.28 previously, based on a 19.5% discount to the peer average.
In a Friday report, analyst Cezzane See says China’s ‘Belt and Road’ initiative will further boost ongoing developments in the country’s international air routes.
This means CAO will benefit since key earning drivers include imported jet fuel supply to China and associate contributions from Shanghai Pudong International Airport Aviation Fuel Supply Company (SPIA).
CAO’s core jet fuel supply division will also gain from growth of long-haul routes of Chinese carriers. The group’s strong alliance with the carriers could also make it one of the preferred jet fuel suppliers for them outside China, further facilitating geographic expansion goals.
Meanwhile, aircraft movement in Shanghai Pudong Airport (SPIA) has been on a steady uptrend the past five years and new airport capacity enhancements are ongoing.
See now expects SPIA associate contributions to account for about 60% of CAO’s FY17-19F PBT.
CAO had a net cash position of 26.1 US cents/share (36 cents/share) in 1Q17, which gives it the financial flexibility to consider M&A opportunities.
The group is also committed to a 30% dividend payout policy, which implies a yield of 2.7-3.28% for FY17-19F.
Shares of China Aviation Oil are trading at $1.66.
