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• UOB Kay Hian's initiation report makes a compelling case for China Aviation Oil (CAO), highlighting that the market may be significantly underestimating this Singapore-listed powerhouse.
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Excerpts from UOB KH report
Analyts: Tang Kai Jie & John Cheong
| Valuation Initiate coverage with a BUY recommendation and a target price of S$2.09, implying 20.1% upside.
Our target price is pegged to 14.5x 2026F PE, +1.0SD above historical averages, which we view as conservative, as it remains significantly below the peers’ average of 24.7x 2026F PE. Earnings growth. We expect robust earnings growth, driven by growing jet fuel trading volumes, higher contributions from associates, and expanding margins from the growing SAF segment. A strong demand recovery in global and regional air travel, coupled with CAO’s strategic positioning as a key aviation fuel supplier in Asia, underpins a three-year CAGR of 33.0% in 2024- 27F EPS. The company’s solid balance sheet and S$515.3m net cash position (44.4% of market cap) also provide ample flexibility for growth initiatives and potential capital returns. |
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Backed by strong fundamentals, CAO currently trades at just 12.1x 2026F PE, representing an around 50% discount to peers, despite delivering superior metrics such as an 8.3% ROE, compared with the industry average of 6.9%.
The company continues to benefit from resilient associate income, particularly from SPIA, which contributes meaningfully to recurring profitability.
With growing travel demand across the Asia Pacific region, we see further upside from continued strength in air traffic volumes and margin expansion opportunities through SAF trading.
Overall, we believe CAO offers a favourable risk-reward profile and expect the sustained earnings momentum to drive valuation re-rating potential over the next 12 months.
→ See UOB KH's full report here.
→ See also: CHINA AVIATION OIL's parent to merge with Sinopec: What this may mean for CAO
