China Aviation Oil (Singapore) Corporation Ltd (CAO) supplies imported jet fuel to the civil aviation industry in China. CAO is 51.3%-owned by state-owned China National Aviation Fuel Group Limited, which holds the mandate to supply all jet fuel requirements in China. CAO also markets jet fuel to airports outside China, and engages in international trading of jet fuel and other oil products, as well as carbon credits. It has a 33% stake in Shanghai Pudong International Airport (SPIA). SPIA accounted for 62% of net profit in FY22.
Initiate coverage with a Buy recommendation and TP of S$1.01.
Our TP is based on the discounted cash flow model. Its operations are asset-light. The balance sheet comprises mainly cash (as at Dec 22: S$0.49/share), investments in associates and working capital. We expect ROIC to rise to 10% in FY23e and 14.4% in FY24e (FY22: 5.6%).
China Aviation Oil (Singapore) Corporation Ltd (CAO) supplies imported jet fuel to the civil aviation industry in China. It buys and sells physical products to the major international aiports, including Guanzhou Baiyun International Airport, Shenzhen Baoan International Airport, Shanghai Pudong International Airport, Beijing Capital International Airport and Shanghai Hongqiao International Airport, which are amongst the busiest airports in terms of aircraft movements in China in 2022. (Figure 1)
The supply contracts with the airlines are on a cost-plus basis. The fuel is sourced mainly from Asian markets such as Japan, South Korea and Taiwan.
CAO also markets and supplies jet fuel to airports outside China. While China accounts for the lion’s share of 53% of revenue, the share of the European markets have been rising steadily as it steps up its presence through a trading arm in the UK and a 12.5% stake in a concession holder at the Amsterdam Schipol Airport. The breakdown in revenue by geography is as shown in Figure 2.
Associates and joint ventures
Through associates and joint ventures, it owns a portfolio of assets that provide storage, pipeline transportation, and re-refuelling facilities to manage the storage and distribution of jet fuel. (Figure 3). These assets are the critical infrastructure that underpin CAO’s entrenched position as the largest physical jet fuel trader in Asia Pacific. The investments in associates account for 28.7% of net assets of the group.