China Aviation Oil Corp Ltd (G92.SI) is China’s sole importer of jet fuel, today the world’s second largest aviation market, and Asia’s biggest jet fuel buyer. China Aviation Oil (CAO) which was involved once in one of Singapore’s biggest derivatives trading scandal shows today an exemplary corporate governance and has been for the fifth consecutive year runner-up in SIAS Most Transparent Company Awards.
The state-controlled China company wants to become a top-tier global integrated transportation fuel provider by expanding its operations overseas. Refocusing on its core business, CAO is on the lookout for investment opportunities in oil-related assets and businesses. The company continues to build on its global jet fuel trading network which includes expanding its aviation marketing business into more airports outside China.
Main argument of the company’s future growth perspectives are the booming numbers of Chinese flying overseas. Last year, China’s outbound leisure travelers topped 100m, a new record. That number is expected to rise 10% this year as countries including the United States, France and Australia relax visa policies. The low oil price should support this trend.
Facing a stronger domestic competition, CAO international strategy is to expand into overseas markets by first supplying fuel to Chinese airlines overseas and then to other airlines and to focus on trading in bonded jet fuel. Jet fuel consumption in the PRC grew more than 10% to estimated 23.6m metric tons in 2014 and is set to sustain growth with jet fuel consumption forecast to hit 39m tons by 2020. With presence in 34 international airports outside mainland China today, the CAO benefits from this impending growth as well.
Despite global economic uncertainties and a highly volatile global oil market with falling jet fuel prices, CAO reported a net profit for its third quarter that has more than doubled to 17.7m USD from 7.3m USD a year ago. Revenues fall on the other Hnd by half in the same period. Net asset value per share was up to 67.92 US cents from 64.35 US cents for the same period a year ago. CAO shows a continuing profitability and growth strengths despite an immensely challenging trading environment. The company drives a low risk strategy with no long term debts.
Analysts recommend selling the stock. This has been the consensus forecast since the sentiment of investment analysts deteriorated on May 25, 2005. The stock has valued mostly less than 1 SGD since 2008. Currently priced at 0.71 SGD it has gained 34% since a sharp fall to 0.53 SGD in August. We like the strength of the company in these difficult times and see the stock as outperformer with the recovery of China’s economy. A P/E of 11 leaves space for upwards potential. Technically we would like to see an upwards trending 200 moving average before considering entering a position.
AIS Rating: ★★★★☆
| 2011 | 2012 | 2013 | 2014 | 2015e | |
|---|---|---|---|---|---|
| EPS | 8.83 | 7.69 | 8.16 | 5.72 | n/a |
| Change | 13% | 6% | -30% | ||
| P/E: P/E Industry: |
11 10 |
