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China Aviation Oil (Singapore)

Traffic growth supporting demand

Update | Industrial Support Services | 29 Mar 2018

FY17 saw record core trading volumes, driven by continued strong demand in jet fuel markets and diversification into other oil products. While margin optimisation execution was more difficult in H217 as markets moved into backwardation, gross margins remained positive and partially recovered from the Q3 low by the year end. Combined with the improved associates’ contribution driven by strong air transport growth in China, prospects for renewed progress in FY18 are encouraging. The healthy balance sheet also positions the group to pursue development of its supply chain infrastructure globally, especially growth opportunities aligned with China’s One Belt, One Road trade route to Europe initiative. Our fair value currently stands at S$1.82.

China Aviation Oil (Singapore)

Strong volumes in tougher trading environment

Update | Industrial Support Services | 12 Nov 2017

Q3 results reflected the combined impact on gross margin of the core trading operation due to a return to a backwardation situation in product markets, as well as supply disruptions. More positively, SPIA and the other associates made a stronger contribution. With adverse trading conditions expected to persist for a period of time, management’s strategy to reduce volatility is being tested. The key growth drivers of increasing air traffic and an expanding geographic footprint continue to increase trading volumes and augur well for the future. Maintenance of profitability at a lower margin level while backwardation conditions persist should be offset by stronger growth from SPIA next year, but we now assume a more subdued expansion of the core business. The balance sheet remains supportive of further strategic M&A to facilitate growth. Our fair value falls to S$1.88 from S$2.11.

China Aviation Oil (Singapore)

Progress in a backward market

Update | Industrial Support Services | 14 Aug 2017

China Aviation Oil (Singapore) Corporation (CAO) has made good progress in the first half of the year, benefiting from favourable volume growth offset to a degree by FX and the non-recurrence of positive stock valuation. Trading conditions look more challenging in the second half with the jet fuel market having moved into backwardation since early July. We are thus taking a much more cautious view on the second half and have reduced our forecasts accordingly. It is important to recognise that cash generation has been far stronger than expected and should remain favourable in H2 as inventory is released and the main associate dividend is received. Thus, our fair value actually increases to US$1.55 (S$2.11) per share from US$1.45 (S$2.04) as a result.

China Aviation Oil (Singapore)

Fuelling growing aviation demand

Initiation | Industrial Support Services | 27 Feb 2017

As the sole licensed importer and supplier of jet fuel to China’s civil aviation industry, China Aviation Oil (Singapore) Corporation (CAO) is a direct play on the rapidly rising demand for air travel in China, augmented by both international and product expansion. While a healthy dividend income from a joint venture at Shanghai’s rapidly expanding Pudong Airport provides the bulk of earnings, the growing trading and supply of oil is supportive of our 14% EPS CAGR over the next two years. Our cash and peer-based fair value of US$1.45 (S$2.04) suggests potential for investors.

Altona Energy

A new way of thinking

Outlook | Mining | 04 Oct 2010

Sasol’s recent announcement that it has flown the world’s first passenger aircraft using entirely synthetic aviation fuel derived from coal highlights the importance of coal-to-liquids (CTL) in modern energy supply. Altona Energy plans to use this technology to produce liquid fuels from its flagship Arckaringa coal deposit in South Australia where it has signed a joint venture deal with CNOOC. The third largest state-owned oil company in China, CNOOC, has agreed to provide $40m for a bankable feasibility study (BFS) focused on the development of a CTL plant and cogeneration power facility. In addition to supplying local demand for fuel and power (including potentially BHP Billiton’s nearby Olympic Dam project), the joint venture is also looking to export fuel and possibly coal to the Asian markets. The BFS has now commenced and will continue for at least 24 months.