• Maintain BUY with lower SGD1.75 Target Price, from SGD1.80, 13% upside as China Aviation Oil remains on track for a return to earnings growth in 2018 after witnessing a decline in 2017.
• Post the analyst briefing for the 2Q18 results, we remain positive about growth but lower our 2018-2020 earnings by 2%-8% to account for slower profit growth from trading business as forward oil price remains in backwardation.
• We maintain that growth will continue to be driven by higher jet fuel supply volume to Chinese aviation market, higher jet fuel and gasoil trading profit and increase in profit contribution from associates.

Steady Jet Fuel Volume Growth in China

Volumes for supply and trading of jet fuel declined 15% y-o-y in 2Q18 to 3.4m tonnes. However, based on our discussion with China Aviation Oil, we understand that the business of jet fuel supply into Chinese aviation traffic, which operates on a cost-plus model, registered mid-teens growth in volume for 2Q18.

With growing aviation traffic, China Aviation Oil remains confident of reporting high single digit growth in supply of jet fuel to Chinese international aviation traffic in the long-term.

Source: RHB Invest Research - 06 Aug 2018