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Wed, September 30, 2020 – 3:06 PM
The CONTINUOUS improvement in China’s aviation traffic and a likely YoY growth in domestic passenger volume and aircraft movements in the upcoming Golden Week holiday will give China Aviation Oil (CAO) a boost.
That’s according to RHB, which on Wednesday updated Asia’s largest jet fuel trader and supplier to “buy” from “neutral.”
Analyst Shekhar Jaiswal also raised the price target to S $ 1.05 from S $ 0.95. The shares rose 0.01 Singapore dollars or 1.1 percent to trade at 0.905 Singapore dollars as of 2:48 p.m. on Wednesday.
Although international air traffic has yet to rebound, higher year-on-year movement of domestic jets at Shanghai Pudong International Airport should support CAO’s recovery of earnings in the second half of 2020, Jaiswal wrote in an update on Wednesday.
“The strong control of Covid-19 cases in the country, the rapid expansion of domestic capacity by Chinese airlines and aggressive price promotions have boosted demand for domestic aviation in China,” he added.
People who are unwilling or unable to travel internationally at this time are also taking advantage of the opportunity to travel within the country, according to RHB.
China’s aviation passenger traffic has seen a strong recovery month-over-month from the low in February this year. Passenger numbers that month dropped 85 percent on the year to just 8.3 million passengers.
Since then, the country’s monthly aviation traffic has improved to 46.1 million passengers in August, although it is still below 25% year-on-year.
During this year’s Golden Week annual holiday from October 1-8, the volume of domestic flights in China is expected to “far exceed” last year’s record, the analyst said.
The CAO’s valuations also remain “compelling” compared to its peers, and given expectations for earnings growth of around 30 percent in 2021, it added.
The company’s net cash position stands at approximately $ 406.7 million, equivalent to 72 percent of its market capitalization.
Another key driver is the growth in the earnings of its partners, especially the supply of aviation fuel from the 33% CAO-owned Shanghai Pudong International Airport (SPIA), which has seen a substantial improvement in flight traffic, RHB noted.
SPIA is the exclusive provider of aircraft refueling services at Shanghai Pudong International Airport.
Separately, the CAO was recently sued by Banque de Commerce et de Placements for an alleged fraudulent deal when the Swiss bank sought to claim the $ 19 million it paid to the Singapore-listed company for a shipment, a court document showed.
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