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DBS VICKERS |
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China Aviation Oil (CAO SP) Compelling Valuations; Reiterate BUY
BUY, new SGD1.30 TP from SGD1.55, 34% upside plus c.5% yield. We cut FY20-21F profit by 6-9% to reflect the decline in aviation traffic, especially in China. China Aviation Oil’s share price has declined on anticipated near-term earnings weakness, but its monopolistic position in China and cost-plus business model ensures profit and cash flow generation. Moreover, a strong net cash balance sheet enables CAO to undertake large acquisitions. It is trading below its NTA/share of USD0.95 (c.SGD1.30), and at an ex-cash 2020 P/E of just 2.5x.
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CSE Global Slightly disrupted flow
Oil price plunge to only slightly impact Oil & Gas business; cut growth assumption for FY20F to zero vs 10% previously. Despite the recent plunge in oil prices due to demand (COVID19) and supply (OPEC+ breakdown) factors, we expect minimal impact on CSE’s Oil & Gas (O&G) business as c.90% of its O&G revenue is recurring in nature. CSE’s existing installed customer base automatically renew their contracts which expire every 1-2 years. These renewals are based on the longer-term outlook on oil price and are not affected by short-term volatility. The balance of c.10% is from the large contracts from O&G and Infrastructure divisions that were already secured.
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| CGS CIMB | |
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Singapore Strategy Going into deeper value zone
■ For stock markets to rally convincingly, the crucial ingredient is confidence, now lacking amid oil price crash, rate cuts and global pandemic. ■ We cut our end-2020 FSSTI target to 2,595 (12.2x CY21F P/E; -2 s.d of 10- year mean) on -13% decline in FY20F EPS. FY21F EPS growth of 4% at risk. ■ Any rebound in market should be used as a selling opportunity, waiting for lower entry. In this report, we screened for names near our conviction buys.
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Check out our compilation of Target Prices
