SINGAPORE (Jan 5): UOB Kay Hian is maintaining its “buy” call on China Aviation Oil (CAO) with a higher target price of $2.01 from $1.90 previously, raising its 2016 earnings estimates for CAO by 7.5% as it notes the oil market is now in contango and “delivering free profits”.

“Oil distributors benefit immensely from an oil price contango environment as they are able to buy oil immediately at a lower price while arranging for deliveries at a later date and higher prices. This macro tailwind is expected to give CAO’s trading profits a fairly significant boost,” explains analyst Edison Chen in a Thursday report.

While the research house reckons these factors have yet to be priced in by the market as trading has been sideways, it believes this will change once CAO reports what it anticipates to be “record-breaking annual results” in Feb this year.

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