SINGAPORE (Apr 29): China Aviation Oil’s (CAO) 1Q19 net profit came in line with the expectations of UOB KayHian and CGS-CIMB Research.
See: China Aviation Oil's 1Q earnings fall 2.12% to $35.9 mil on lower revenue
CAO’s 1Q19 earnings fell 2.1% y-o-y to US$26.3 million ($35.8 million) largely driven by lower average oil prices which rebounded in 2Q19.
While other operating income leapt 73.6% y-o-y, this was not enough to offset lower profits from trading and optimisation activities and weak share of profits from Shanghai Pudong International Airport Aviation Fuel Supply Company (SPIA) and Oilhub Korea Yeosu Co (OKYC).
UOB notes that CAO will benefit from sustained contributions from SPIA, but renminbi weakness will likely take the shine off SPIA’s contribution to CAO’s bottom line.
“We maintain our neutral stance on CAO as we await a turnaround in the operating environment,” says UOB, “Reiterate ‘hold’ with a PE-based target price of $1.25, pegged at 8.4 times 2019F earnings. Entry price: $1.10.”
Meanwhile, CGS-CIMB is maintaining its “add” and target price of $1.70 or 11 times FY20F earnings, saying it still sees CAO as a longer-term proxy for China’s growing outbound travel and like its healthy balance sheet.
In addition, 1Q19 earnings formed 27.7% of CGS and Bloomberg consensus FY19F forecasts of $95.1 million and $95.3 million respectively.
CGS-CIMB says crude oil prices have thus far recovered with Brent and WTI trading at US$75/bbl and US$66/bbl respectively. These could help future quarter results.
As at end 1Q19, CAO had a cash of US$379.2 million and no borrowings giving it a cash position of 43.8 US cents/share. This gives it ample balance sheet headroom to participate in acquisitions, in CGS’s view, as CAO had previously mentioned that it is always open to M&A opportunities to expand its global jet supply and trading network, complemented with trading in other products.
As at 10.46am, shares in CAO are trading at $1.39.
