RHB initiated coverage on China Aviation Oil with a Buy call and TP of $1.24 noting that the company has been able to deliver low-risk resilient profits on a rare jet fuel import monopoly to serve China’s civil aviation industry, making it an excellent proxy to China’s global aviation traffic boom.
Its lucrative stake in Shanghai’s airport refueler has also helped it power resilient profits despite the 2014 oil shock. The company is looking to double its profits by 2020 through various opportunistic M&As.
Its current undeserved valuations could largely be pinned on market misperception due to its history and previous scandal back in 2004. However, CAO operates a low-risk cost-plus jet fuel supply business in China and has strong parents such as the Chinese Government and global oil major player BP.
While this misperception and subsequent valuations are deemed underserved by RHB, the bank notes that management could potentially look into a dual listing to unlock value.
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