{"id":13632,"date":"2022-12-02T07:00:56","date_gmt":"2022-12-01T23:00:56","guid":{"rendered":"https:\/\/www.smallcapasia.com\/?p=13632"},"modified":"2022-11-03T16:06:06","modified_gmt":"2022-11-03T08:06:06","slug":"china-aviation-oil","status":"publish","type":"post","link":"https:\/\/www.smallcapasia.com\/zh-hans\/china-aviation-oil\/","title":{"rendered":"China Aviation Oil"},"content":{"rendered":"<p><em>Excerpts from UOBKayHian report<\/em><\/p>\n<h2>China Aviation Oil (SGX: G92)<\/h2>\n<ul>\n<li>China Aviation Oil (CAO) has a monopolistic position supplying jet fuel to airlines at key airports in China. Predictably, its profitability has been hit by a COVID-19-related decline in air travel<\/li>\n<li>CAO\u2019s balance sheet remains strong with net cash of S$0.24\/share as at end-1H22. Nevertheless, it had material negative free cash flow of US$172m in 1H22 (1H21: +US$37m).<\/li>\n<\/ul>\n<p>The company\u2019s valuations appear fair as it is trading at 2022 annualised ex-cash PE of 10x.<\/p>\n<h2>China Aviation Oil\u00a0Hit by lower business levels due to COVID-19<\/h2>\n<p>Recent 1H22 results were poor with supply and trading volume declining 36% yoy to 11.27m tonnes. While higher oil prices helped revenue grow 7% yoy, net profit fell 19% yoy to US$20m due to higher staff costs, provisions and lower associate contribution from Shanghai Pudong airport as China\u2019s zero-COVID strategy throttled travel.<\/p>\n<p>Notably, receivables nearly doubled to US$1.3b, and net cash fell 49% during the course of 1H22.<\/p>\n<h2>Reasonably healthy financial position<\/h2>\n<p>Despite its lower profitability in the past two years vs historical levels, China Aviation Oil Singapore Corporation\u2019s (CAO) balance sheet<br \/>\nremains debt free with its net cash at US$205m as at end-1H22.<\/p>\n<p>This translates to a net cash per share of S$0.24, representing 28% of the company\u2019s current share price.<\/p>\n<h2>A mixed industry outlook at present, but should improve<\/h2>\n<p>While Chinese government actions have somewhat benefitted CAO (eg increasing CAO\u2019s refined fuel export volume of 20,000 tonnes), the company\u2019s outlook remains tied to the easing of China\u2019s zero-COVID strategy \u2013 and thus travel restrictions \u2013 rather than other factors in the next 6-12 months.<\/p>\n<p>In addition, additional fuel charges for domestic flights, which in some instances represent about 80% of the ticket price, have currently dampened demand for short-haul domestic flights.<\/p>\n<h2>Volatile markets provide arbitrage opportunities for crude oil<\/h2>\n<p>The company has a diversified oil products portfolio (comprising of fuel oil, gasoil, gasoline and crude oil) as well as a trading network globally and thus is able to arbitrage pricing opportunities.<\/p>\n<p>We note that in 2021 its arbitrage trade volume was the highest in its corporate history. We also highlight that aside from jet fuel, CAO has diversified away from its traditional aviation fuels and supplies other fuels to ship owners, power generators and end consumers.<\/p>\n<h2>Renewable energy a longer term threat\u00a0and possibly opportunity<\/h2>\n<p>Given the high oil prices and environmental regulation on carbon emissions, power generating firms have turned to other alternatives, thus threatening CAO\u2019s profitability in the long run.<\/p>\n<p>Cognisant of such risks, the company has stated that it will look to incorporate biofuels and carbon credits trading into its portfolio.<\/p>\n<h2>Valuations\/Recommendation<\/h2>\n<p>Based on consensus, CAO trades at 2022 PE and P\/B of 10x and 0.6x respectively vs peers&#8217; average PE and P\/B of 8.9x and 0.8x. However on an ex-cash basis and annualising 1H22 EPS, the company currently trades in line with its peers.<\/p>\n<p>In 2021, the company generated an ROE of 4.5% vs regional peers&#8217; average of over 10%.<\/p>\n<figure id=\"attachment_13633\" aria-describedby=\"caption-attachment-13633\" style=\"width: 1392px\" class=\"wp-caption alignnone\"><a href=\"https:\/\/www.smallcapasia.com\/wp-content\/uploads\/2022\/11\/China-Aviation-Oil-share-price-chart.jpg\"><img fetchpriority=\"high\" decoding=\"async\" class=\"wp-image-13633 size-full\" src=\"https:\/\/www.smallcapasia.com\/wp-content\/uploads\/2022\/11\/China-Aviation-Oil-share-price-chart.jpg\" alt=\"China Aviation Oil share price chart\" width=\"1392\" height=\"640\" \/><\/a><figcaption id=\"caption-attachment-13633\" class=\"wp-caption-text\">China Aviation Oil share price chart<\/figcaption><\/figure>\n<p>You can find the full report <em><a href=\"https:\/\/www.smallcapasia.com\/wp-content\/uploads\/2022\/12\/China_Aviation_Oil.pdf\">here<\/a><\/em>\u00a0and the company website <em><a href=\"https:\/\/cao.gcs-web.com\/\" target=\"_blank\" rel=\"noopener noreferrer nofollow\">here<\/a><\/em><\/p>\n<p>[thrive_leads id=&#8217;13210&#8242;]<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Excerpts from UOBKayHian report China Aviation Oil (SGX: G92) China Aviation Oil (CAO) has a monopolistic position supplying jet fuel to airlines at key airports in China. Predictably, its profitability has been hit by a COVID-19-related decline in air travel CAO\u2019s balance sheet remains strong with net cash of S$0.24\/share as at end-1H22. Nevertheless, it [&hellip;]<\/p>\n","protected":false},"author":36,"featured_media":13634,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"fifu_image_url":"","fifu_image_alt":"","footnotes":""},"categories":[1,58,57],"tags":[1943,2289,2290,2291,881,1043,1331],"class_list":["post-13632","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog","category-singapore-stocks","category-stocks","tag-singapore-stocks-ideas","tag-china-aviation-oil-share-price-chart","tag-china-listed-companies","tag-aviation-stocks","tag-singapore-stocks","tag-china-aviation-oil","tag-singapore-stocks-to-buy"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.smallcapasia.com\/zh-hans\/wp-json\/wp\/v2\/posts\/13632","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.smallcapasia.com\/zh-hans\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.smallcapasia.com\/zh-hans\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.smallcapasia.com\/zh-hans\/wp-json\/wp\/v2\/users\/36"}],"replies":[{"embeddable":true,"href":"https:\/\/www.smallcapasia.com\/zh-hans\/wp-json\/wp\/v2\/comments?post=13632"}],"version-history":[{"count":4,"href":"https:\/\/www.smallcapasia.com\/zh-hans\/wp-json\/wp\/v2\/posts\/13632\/revisions"}],"predecessor-version":[{"id":13636,"href":"https:\/\/www.smallcapasia.com\/zh-hans\/wp-json\/wp\/v2\/posts\/13632\/revisions\/13636"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.smallcapasia.com\/zh-hans\/wp-json\/wp\/v2\/media\/13634"}],"wp:attachment":[{"href":"https:\/\/www.smallcapasia.com\/zh-hans\/wp-json\/wp\/v2\/media?parent=13632"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.smallcapasia.com\/zh-hans\/wp-json\/wp\/v2\/categories?post=13632"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.smallcapasia.com\/zh-hans\/wp-json\/wp\/v2\/tags?post=13632"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}