China Aviation Oil

[violinist]

If you read Chinese, look at the orders for C919!

http://www.sohu.com/a/149122578_498808
http://www.comac.cc/xwzx/cyzx/201706/13/...8729.shtml

[chuanyao]

Hi,
    anyone concern with the increase of receivables every quarter?
    Q1 792mil
    Q2 996mil

[vingaard]

If you look at Q3 2016, receivables was also around this level.
Further, if you analyse the quarterly results, you will see that the amount of payables closely match the amount of receivables.

My guess is that the receivables and payables represent the size of their open positions in oil trading. If I'm wrong, someone please correct me.


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[cyclone]

Proposed Disposal of Associated Company - China Aviation Oil Xinyuan Petrochemicals Co., Ltd

China Aviation Oil (Singapore) Corporation Ltd announced it's intention to dispose its entire 39% equity in China Aviation Oil Xinyuan Petrochemicals Co., Ltd.

As a subsidiary of China National Aviation Fuel Group Limited, a state-owned enterprise of the People's Republic of China, the Proposed Disposal will be made by way of a listing-for-sale through China Beijing Equity Exchange which is an approved equity exchange, in accordance with the relevant laws and regulations of the People's Republic of China concerning the disposal of State-owned assets.

An announcement in relation to the Proposed Disposal will be made by the Company as soon as practicable after the completion of the Listing-for-Sale.

[Squirrel]

Seems like there hasn't been much discussion on this company in a while.

In recent years, the advent of Covid has resulted in a crash in profitability of China Aviation Oil's crown jewel, its associate called Shanghai Pudong Internation Airport Aviation Fuel Supply Company Ltd. Even with the pandemic, the company has stayed profitable over the years and amassed a huge cash pile of US$534 million as of Jun 2023. The article places in focus the recovery in travel that would prime SPIA for a recovery towards the impressive profitability displayed prior to the pandemic, and that increases the potential for rerating of CAO's target price by various analysts.

https://www.thesquirrelsdrey.com/post/ch...r-take-off

[Squirrel]

As the number of chinese travellers headed for overseas destinations recover, the volume based business underlying the Shanghai Pudong International Airport Aviation Fuel Supply Co is poised to regain its profitability to levels reached during pre-covid times. This 33% ownership interest itself alone would be able to support a valuation of 10x PE (current market cap of $797m) for CAO, without looking at the remaining businesses.

https://www.bloomberg.com/news/articles/...epage-asia

So far, the company hasn't seen its share price rerating despite 1) the recovery seen in travel, 2) the strengthening of USD, 3) rally in HK/China stocks and 4) higher for longer on interest rates (cue USD cash pile). I believe there is a huge asymmetric return profile on this particular investment with its strong balance sheet. Do you?

[weijian]

Hi Squirrel,

I did take a look at CAO after your Feb2024 post (just as I have done for HLS and YZJFH).

Since you already mapped out the positives in your blog, I will probably map out the negatives here:

(1) The Balance Sheet is prescient. ZERO gearing with equity made up of 40% cash, 30% working capital and 25% equity- accounted associate and 5% PPE/intangible asset. You can't get more simplified than that. The only problem would be its business model - that of a trader - which requires large working capital that may fluctuate over the years. For example, if GP for a 100mil trade is 0.5%, it will earn 500k. If GP for a 200mil trade is 0.25%, it will earn 500k too. So both trades have same profit but the latter trade needs more working capital (whether is it receivables or inventory). Is this the main reason why dividend payout is at =30% (if we exclude 30yr anniversary special dividend). Also by capping dividend payout at 30% of PATMI on a trading business model that is opportunity-dependent, it creates certain degree of variability in terms of the dividend yield.

(2) CAO has a turnover days: Receivables turnover~26days, payables turnover~20days and inventory turnover~2days. A major part of the receivables are due from parent and with the ~6days mismatch, it does seem to me that Parent is using CAO (to a certain degree) to fund their own working capital by this 6days "delay".

(3) As for SPIA recovery, we can see that domestic flights have recovered/surpassed pre-covid while international flights have not. The Market does expect international flights to continue to recover, as most of us had hoped since early 2023 when it removed most covid-19 restrictions. But the BIG question I have would be - Could it be a zero sum game? Ie. Chinese tourists decide to stay in China for 2023 and so domestic flights recovered to pre-covid, at the expense of international flights. If FY24 is the year that Chinese tourists decide to venture outside of China, would the increase in international flights come at the expense of a reduction in domestic flights? Of course, we can say there is pent-up demand but as for all "pent-up demand", it will taper in time to come as it is just bringing future demand forward.