China Aviation Oil shares seesaw on talks of potential merger between parent CNAF and mega refiner Sinopec

[SINGAPORE] Shares of China Aviation Oil (CAO) ended lower despite surging as much as 4.5 per cent on Tuesday (Nov 4) following word of a merger between Sinopec, the largest oil refiner in China, and China National Aviation Fuel (CNAF).

As at 9.28 am, the counter reached S$1.61 on the Singapore Exchange, up by around 4.5 per cent. But in a day of seesaw trading, it closed 1.3 per cent or S$0.02 lower.

Sinopec is expected to absorb all of CNAF’s assets and operations, if the merger goes through, Bloomberg reported, quoting a source. CNAF owns 51 per cent of CAO, and, on occasion, balances domestic supplies by importing or exporting cargoes via trading arms like the group.

CAO noted in an exchange filing that its controlling shareholder “will be undergoing a corporate restructuring with another corporate conglomerate”. The counter-party, however, was not named.

Negotiations are reportedly ongoing, with no guarantee that the deal will proceed, sources said.

Singapore-listed CAO’s share price has been on a tear in the past half year, having surged over 80 per cent.

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For the half year ended June, the company reported an 18 per cent higher profit of US$50 million on higher gross profit and associates’ share of results.

Earlier in October, DBS analyst Jason Sum restarted coverage of the stock. He set a target price of S$1.75 for the counter, citing the normalisation of crude oil and jet fuel market structures, which is expected to lift trading profitability, as well as “persistent regional price differentials” that should continue to create arbitrage opportunities.

The core business of CAO is in jet fuel supply and trading. It is the largest physical jet fuel buyer in Asia-Pacific and the key importer of such fuel into China.

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Sinopec said to be in talks to merge with China’s aviation fuel giant

Sinopec is China’s biggest oil and petrochemical products supplier. The company is also the largest refining company and the second-largest chemical company in the world. The Fortune 500 firm’s Singapore interests include petrochemical trading, marine bunkering operations and the sale of refined and chemical products. It also operates petrol stations in Yishun and Bukit Timah.