Brokers' take: Analysts raise target prices on China Aviation Oil on air traffic recovery hopes

ANALYSTS from CGS-CIMB and RHB have raised their target prices on China Aviation Oil (CAO) on expectations of air traffic recovery.

In a research note on Tuesday, CGS-CIMB maintained a "hold" call on CAO, raising its target price to S$1.17, up from S$0.87 previously.

Analyst Cezzane See raised her net profit forecasts on the jet fuel trader for FY2021 to US$66 million from US$65.9 million previously as she noted that CAO's FY2020 results, though weaker, still came in 107.9 per cent above Bloomberg's forecasts.

Further, she observed that the group's cash balance "remains relatively healthy at US$269.1 million" and places the company in a good position for the management's accretive merger and acquisition plans.

"We lift our valuation basis to 10 times from 8.5 times price-to-earnings ratio (P/E) and roll forward our earnings to FY22F earning per share as we think that it should trade at least at its 2016-2020 average mean with many economies slowly lifting lockdowns as they roll out vaccines," said Ms See.

Meanwhile, RHB maintained a "buy" call on the stock, raising its target price to S$1.30 from an earlier price of S$1.27.

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This comes on expectations that domestic aviation traffic in China will remain strong in 2021, and international aviation traffic will register a gradual recovery in the later part of this year, the research house said in its report on Tuesday.

Though CAO's earnings in the short term may be affected by restrictions on domestic travel over the Chinese New Year, analyst Shekhar Jaiswal is optimistic of a sustained air travel recovery for the rest of 2021.

Mirroring China's aviation recovery, he forecast a 20 per cent rebound in jet fuel supply and trading volumes in 2021 and foresees an upside in China will further drive recovery in international flights.

Further, Mr Jaiswal believes CAO could use its large cash balance for an earnings-accretive acquisition, valuing the counter at 6.7 times P/E for 2021.

As at the midday break on Tuesday, shares of CAO were trading at S$1.14, up S$0.02 or 1.8 per cent.