Excerpts from UOBKayHian report China Aviation Oil (SGX: G92)

• China Aviation Oil (CAO) has a monopolistic position supplying jet fuel to airlines at key airports in China. Predictably, its profitability has been hit by a COVID-19-related decline in air travel
• CAO’s balance sheet remains strong with net cash of S$0.24/share as at end-1H22. Nevertheless, it had material negative free cash flow of US$172m in 1H22 (1H21: +US$37m).

The company’s valuations appear fair as it is trading at 2022 annualised ex-cash PE of 10x. China Aviation Oil Hit by lower business levels due to COVID-19 Recent 1H22 results were poor with supply and trading volume declining 36% yoy to 11.27m tonnes. While higher oil prices helped revenue grow 7% yoy, net profit fell 19% yoy to US$20m due to higher staff costs, provisions and lower associate contribution from Shanghai Pudong airport as China’s zero-COVID strategy throttled travel. Notably, receivables nearly doubled to US$1.3b, and net cash fell 49% during the course of 1H22....