Expect earnings growth for China Aviation Oil Singapore: RHB

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China Aviation Oil Singapore (CAO) will likely see the return of earnings growth this year, said RHB in a note on Tuesday.

“Growth would be aided by strong contribution from Shanghai Pudong International Airport Aviation Fuel Supply Company (SPIA), supply of jet fuel into Chinese aviation traffic and a more rationalized approach on the trading business,” said Shekhar Jaiswal, an analyst at RHB.

Earnings at SPIA, which is 33 percent owned by CAO, are expected to grow 13-15 percent during 2018-2019 on the back of upcoming capacity expansion at the Shanghai Airport, the report said.

“CAO’s stake in SPIA is almost equal to the former’s market capitalization,” added Jaiswal. According to RHB, the equity stake in SPIA could be worth US$995 million, compared with CAO’s current market value at $1.011 billion.

Meanwhile, the brokerage expects an 8-9 percent year-on-year growth in jet fuel trading, while an anticipated decline in gasoil trading might be a positive for CAO. This is because gasoil trading likely led to lower profitability for the middle distillates business in 2017, added RHB.

RHB increased its 2018 to 2019 earnings forecast by 2-5 percent, and upgraded CAO to a Buy rating from Neutral. It also raised its target price to S$1.80 from S$1.60.

The stock ended Wednesday up 1.27 percent at S$1.60.