CHINA AVIATION OIL's parent to merge with Sinopec: What this may mean for CAO

Singapore-listed China Aviation Oil (CAO) has given the news on 8 Jan: the Chinese government has approved the merger of its parent company, CNAF, with Chinese global energy giant Sinopec Group.

Essentially, Sinopec (also known as China Petrochemical), the world’s largest oil refiner, is absorbing CNAF, the 51% majority owner of CAO.

A Chinese state-owned enterprise, CNAF has a virtual monopoly in China’s aviation fuel market, supplying all domestic and international airlines operating in the country, while also building or managing fueling facilities at most airports.

Observers reckon the merger could raise institutional interest in the stock, one of a number of positive possibilities (ie, not necessarily certainties).

CAO profit2024

Observers say that while CAO has released a filing stating that "business as usual" continues for now, the future reality could be much more positive:

Cheaper Money: Being part of the Sinopec family will likely lower CAO’s cost of capital given that Sinopec is a Fortune Global 500 company.

CAO handles massive volumes of fuel trading annually but it doesn't fund every purchase with its own cash — it relies on bank-issued Letters of Credit.

Currently, CAO holds net cash of ~US$500 million as a safety net (seen by the market as overly conservative) because it is a standalone entity in a volatile market.

With Sinopec as a backstop, CAO will no longer need to keep a massive "rainy day fund" and can deploy it for M&A or — more importantly for shareholders— higher dividends.

"Sinopec’s oversight could also support stronger capital discipline and higher dividends, consistent with broader SOE reform objectives aimed at enhancing shareholder returns," said DBS Research in a Nov 2025 note.
The "Refinery-to-Wing" Advantage: The merger removes middleman markups and streamlines the entire supply chain.

Currently, Sinopec refines the jet fuel and sells it to CNAF, which then manages the storage and refueling at over 250 airports.

Every time fuel changes hands from Sinopec to CNAF, there are administrative, transactional, and profit-margin layers added to the cost.

By merging, these two entities eliminate internal markups, observers say.

This might translate into higher gross margins for CAO as well as savings for its customers (the airlines).
A "Green" Growth Engine: Sinopec is a leader in Sustainable Aviation Fuel (SAF) technology.

Sinopec owns the proprietary "SRJET" technology to produce green fuel.

Xinhua was reportedly noting that the merger will remove commercialization bottlenecks of SAF and promote large-scale adoption at domestic airports to achieve a green and low-carbon transition.

As the world’s airlines pivot to green energy, CAO is positioned to be the primary distributor for Sinopec’s SAF exports.

That looks like a new revenue stream waiting to happen.

Bottomline

In short, this isn't just a corporate shuffle — it's a strategic move that could strengthen CAO's position, cut costs, and position it at the forefront of the industry's green future.

Stock price	$1.69
52-week range	$0.75-$1.72
Market cap	S$1.45b
PE (ttm)*	13
Dividend yield	2.2%
P/B	1.1
* PE ex-cash is approx. 6X.

Lim & Tan Securities' take:

"At CAO’s last traded price of $1.65, the stock is capitalized at $1.4bln, forward PE is 11.1x, ex-cash PE is very attractive at 6.6x while normalized dividend yield is 3% (we understand that there is a good chance for special dividends to be dished out once the restructuring process is over). Given the robust air traffic in 2025, we see potential for consensus earnings beat for CAO when they announce their FY2025 results at the end of Feb’26 and there could also be a dividend surprise as a result.

"Given both positive fundamental and speculative appeal on CAO, coupled with its undemanding valuations especially taking into account its solid and robust balance sheet, we thus maintain an Accumulate rating on CAO (and have the stock as our Top Alpha pick for FY2026) and we have a 1-year target price of $1.80 for the stock."

CHINA AVIATION OIL's parent to merge with Sinopec: What this may mean for CAO

You may also be interested in: