Results at a glance
+ Trading business performed well: Revenue jumped by 55.6% YoY in 1H17. More importantly, this was supported by 14.9% YoY growth in volumes, out of which, 11.6% and 20.4% growth were from middle distillate (9.5mn tonnes in 1H17) and other oil products (6.12mn tonnes in 1H17), respectively. During the period, oil price (Brent) rallied from US$43.0/bbl to US$52.3/bbl with 21.6% YoY growth.
+ Gross profit grew c.13% YoY growth: It is delivering the enhancement in trading efficiency that CAO aims to accomplish this year. We measure efficiency by gross profit per million tonne (US$/mnt). There was an improvement from US$1.13/mnt in 2Q16 to US$1.26/mnt 2Q17.
– Profits from associates disappointed: Profits from associates, namely SPIA*, declined a modest 1% YoY in 1H17 (+47% YoY: 1H16). Given the fact that USD appreciated 4.6% YoY against RMB over the period, the growth of the profit contributions without FX translation difference could be flattish or slightly positive.
We remain upbeat on SPIA because the fifth runway in Pudong International Airport is expected to commence operation by this year end. By 2019, the passenger traffic there is estimated to be more than 80mn, compared to 66mn in 2016. Therefore, such a huge potential growth in traffic will drive up profits from SPIA.
CAO’s management reiterated their global ambitions. As always, we look forward to the inorganic growth in the future. We believe that Cao has built up their cash hoard and experience in preparation for major acquisitions.
*SPIA: 33% stake in Shanghai Pudong International Airport Aviation Fuel Supply Company Ltd
Maintain Buy with unchanged TP of S$2.00
We revise down our FY17e EPS from previous 12.7 US cents to 12.2 US Cents, due to the slowdown of the growth in profits from associates. Based on the unchanged average forward PER of 11.7x and estimated appreciation in USD, we maintain our Buy call with an unchanged target price of S$2.00.