Background: China Aviation Oil (CAO) is the largest purchaser of jet fuel in the Asia Pacific. It supplies 90% of jet fuel imports to China’s aviation industry. The country’s three major international airports are its key clients. Its other business includes petrochemical and oil trading.
Recent developments: Over the weekend, CAO announced its US$32m investment for a 26% equity stake in Oilhub Korea Yeosu Co. Ltd (OKYC), a joint‐venture company that is building an oil storage terminal in Yeosu, South Korea. This follows hot on the heels of another investment in a greenfield oil storage terminal project in Johor, Malaysia, announced on 6 October.
Key ratios…
Price‐to‐earnings: 9.2x
Price‐to‐NTA: 1.5x
Dividend per share / yield: S$0.02 / 2.2%
Net cash/(debt) per share: S$0.05
Net cash as % of market cap: 5.5%
Share price S$0.91
Issued shares (m) 718.2
Market cap (S$m) 653.6
Free float (%) 28.5
Recent fundraising Nil
Financial YE 31 December
Major shareholders China National Aviation Fuel Group (51.0%), BP Plc (20.0%)
YTD change ‐41.6%
52‐wk price range S$0.83‐1.71
Source: Company
Our view
Strategic asset for oil trading business. The investment in Johor is a joint venture with Malaysian company Centralised Terminals Sdn Bhd (CTSB) to build and operate an oil storage terminal for jet fuel, gasoil and fuel oil at the Port of Tanjung Langsat in Johor (Terminal Three Facility). CAO will own a 26% equity stake in the facility with an equity investment of US$10m over the next two years. The facility will provide CAO with a steady income stream when it is completed by 2013, as well as a platform for expanding its oil trading business outside China.
Adding value to customers. OKYC will be jointly owned by CAO, Korea National Oil Corp (29% stake) and several other Korean conglomerates such as Samsung C&T Corp and LG International Corp. This investment strengthens CAO’s ability to ensure jet fuel supply to its China customers.
FY11 earnings may set new high. CAO reported strong 1H11 earnings on the back of robust volumes and associate earnings. Despite the gloomy global economic outlook for 2H11, the company expects to achieve record earnings for the full year with 1H11 net profit already making up 75% of its FY10 net profit. Valuations are attractive at 9.2x historical PER after the recent sell‐down, with growth prospects aided by strategic investments and robust growth in China’s aviation industry.
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