China Aviation Oil - CGS-CIMB Research 2024-01-10: Likely A Strong 2H23F Showing

• We expect China Aviation Oil (SGX:G92) to announce its 2H23F results in the last week of Feb 24. We forecast 2H23F net profit to rebound to US$26m (+32% h-o-h, +88% y-o-y), driven by an improved trading environment and rebounding contribution from associates.

China Aviation oil's EPS rebound in 2H23 driven largely by outbound travel recovery

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• more trading opportunities.
• As crude oil prices showed better stability in 2H23F compared to 1H23, we think China Aviation Oil’s traders were able to capitalise on more margin optimising trading opportunities in the second half.
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Outbound flight volumes from China set to grow further in 2024F

• As of end-Dec 23, China’s outbound flight volumes (measured by seat capacity) stood at 64% of 2019 levels, while domestic flight volumes have exceeded 2019 levels. As announced on 4 Jan 24, the Civil Aviation Administration of China expects international flight volumes to hit 80% of pre-COVID levels by end-2024F, giving us greater certainty of travel recovery ahead.
• While domestic economic weakness and visa issues have resulted in international flight volumes recovering slower than we had previously anticipated, we think 2024F volume recovery will be driven by
  1. eased visa restrictions for tourists entering China,
  2. complete lifting of COVID-19 restrictions within China, and
  3. further restoration of flight routes between China and laggard countries (notably US and Japan).

Reiterate ADD on healthy EPS growth & decent valuation

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Kenneth TAN CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2024-01-10 SGinvestors.io

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