Singapore Company Guide
China Aviation Oil
Refer to important disclosures at the end of this report
Version 2 | Bloomberg: CAO SP | Reuters: CNAO.SI
DBS Group Research . Equity
30 Aug 2016
BUY
Proxy to China’s civil aviation growth
Last Traded Price: S$1.36 (STI : 2,829.43)
Price Target 12-mth: S$1.70 (26% upside)
Potential Catalyst: Earnings growth and delivery; value-accretive
acquisitions
Where we differ: Slightly below consensus
Analyst
Paul YONG CFA +65 6682 3712 paulyong@dbs.com
Singapore Research Team
What’s New




CAO’s management met with our investors in HK
recently
Organic growth to be mainly led by burgeoning
Chinese civil aviation growth and extension of
CAO’s global distribution network for its aviation
marketing business
Strong balance sheet to fund M&A opportunities
Reiterate BUY with TP of S$1.70
Price Relative
Forecasts and Valuation
FY Dec (US$ m)
Revenue
EBITDA
Pre-tax Profit
Net Profit
Net Pft (Pre Ex.)
Net Pft Gth (Pre-ex) (%)
EPS (S cts)
EPS Pre Ex. (S cts)
EPS Gth Pre Ex (%)
Diluted EPS (S cts)
Net DPS (S cts)
BV Per Share (S cts)
PE (X)
PE Pre Ex. (X)
P/Cash Flow (X)
EV/EBITDA (X)
Net Div Yield (%)
P/Book Value (X)
Net Debt/Equity (X)
ROAE (%)
2014A
17,061
55.6
51.0
49.2
49.2
(30.0)
7.77
7.77
(30)
7.77
2.06
87.5
17.4
17.4
18.2
13.7
1.5
1.5
CASH
9.1
Earnings Rev (%):
Consensus EPS (S cts):
Other Broker Recs:
2015A
8,987
66.2
63.6
61.3
61.3
24.7
9.69
9.69
25
9.69
2.88
93.7
14.0
14.0
16.5
10.4
2.1
1.4
CASH
10.7
2016F
7,299
80.6
78.5
75.4
75.4
23.0
11.9
11.9
23
11.9
3.58
102
11.4
11.4
22.7
7.7
2.6
1.3
CASH
12.2
2017F
8,454
91.0
89.0
85.4
85.4
13.3
13.5
13.5
13
13.5
4.05
111
10.0
10.0
38.8
6.3
3.0
1.2
CASH
12.6
B: 3
12.5
S: 0
15.1
H: 1
Source of all data on this page: Company, DBS Bank, Bloomberg
Finance L.P
ASIAN INSIGHTS
ed: JS / sa:YM, PY
Takeaways from investor meetings; reiterate BUY with TP of
S$1.70. We arranged several investor meetings for China
Aviation Oil (CAO) over two days in Hong Kong (25 and 26 Aug)
and met with ten different funds – most of which were new to
the company. In the following page, we present some of the
key highlights of the management presentation and questions
from investors raised during the sessions.
Sole supplier of imported jet fuel in China with growing
international presence. With monopoly on the supply of bonded
jet fuel to China’s civil aviation industry, CAO should benefit
from the long-term growth of China’s international air travel
market. Furthermore, with the backing of SOE parent China
National Aviation Fuel Group (CNAF), CAO has expanded its
business to the marketing and supply of jet fuel at 42
international airports outside China, and further growing its
reach, volumes, and ultimately greater economies of scale.
Firm outlook for prized asset 33%-owned associate, SPIA. As
the exclusive supplier of jet fuel to Pudong International Airport,
Shanghai Pudong International Airport Aviation Fuel Supply
Company (SPIA) has and should continue to benefit from rising
air traffic at the airport, which is driven by the continued
development of Shanghai as China’s key financial centre. Net
cash and strong balance sheet could fund acquisition-driven
growth. With net cash of c.US$169m at the end of 1H16, and
strong support from its parent CNAF, we believe that CAO
could be on the lookout for acquisitions to further grow the
scale and reach of its business and profits.
Valuation:
Our TP of S$1.70 is based on 12x FY17F PE. We think that 12x
earnings against the projected 18% EPS CAGR over FY15FY17F is reasonable, and believe that the group is poised to
see a structural re-rating of its valuation multiple on sustained
earnings growth, especially if CAO can utilise its strong cash
balance to further accelerate growth through M&A.
Key Risks to Our View:
Weaker demand for air travel and execution risk. A sustained
slowdown in demand for air travel could impact jet fuel
demand and volumes. Further, the group could also face
execution risk in its trading business and prospective M&A
activities.
At A Glance
Issued Capital (m shrs)
Mkt. Cap (S$m/US$m)
Major Shareholders (%)
China National Aviation Fuel Grp
BP Plc
Free Float (%)
3m Avg. Daily Val (US$m)
ICB Industry : Oil & Gas / Oil & Gas Producers
865
1,172 / 862
51.0
20.1
28.9
3.0
VICKERS SECURITIES
Company Guide
China Aviation Oil
WHAT’S NEW
Takeaways from investor meetings (25 and 26 Aug) in
HK
We arranged several meetings for CAO over two days in
Hong Kong (25 and 26 Aug) and met with ten different funds
– most of which were new to the company. Attendees from
CAO were:
Ms Jean Teo (Group Chief Operating Officer), Ms Elaine Ang
(Head, Investor Relations) and Ms Lilian Low (Investor
Relations officer)
Salient points from management presentation:
1) Strong corporate governance and risk management
policies. CAO, post the 2004 trading scandal, in which both
BP and Temasek entered as white knights to restructure the
company, is very much a risk-aware and prudent entity now
especially in terms of its trading activities. In management’s
view, the company has adopted the best of risk management
and corporate governance policies, and restructuring steps
from BP and Temasek (although Temasek has long divested its
4.9% stake while BP still holds 20%). Ten years on, CAO has
developed its own core competencies and expertise in these
vital areas independent of its shareholders, winning several
accolades in corporate governance and corporate
transparency.
2) Burgeoning Chinese civil aviation growth a key driver for
CAO. For its jet fuel import business in China, CAO benefits
from the expected long-term growth of China’s outbound
international passenger traffic, which is currently growing at
a high single-digit pace. Meanwhile, its key associate,
Shanghai Pudong International Airport Aviation Fuel Supply,
will benefit from the overall growth at Pudong airport, which
is expanding capacity to cater for future growth. These two
segments, by our estimates, account for more than 70% of
the company’s earnings, presenting a sustainable growth
trajectory for CAO going forward.
3) Extending global distribution network for its aviation
marketing business. Over the last few years, CAO has been
growing its global distribution presence, and currently
supplies jet fuel to 42 international airports outside of China.
The company continues to look for opportunities to gain
access to new airport/markets to grow its global presence. At
the same time, CAO is also confident of growing its market
share into recently penetrated regions/markets, such as the
US – the world’s largest aviation market today, even as it
maintains an entrenched positioning in China’s burgeoning
aviation market.
4) Trading segment to help augment margins and
opportunistic gains. Meanwhile, CAO’s trading arm will
continue to adopt prudent strategies that help to optimise
margins for its aviation fuel supply and marketing business
ASIAN INSIGHTS
Page 2
CAO’s increasing scale and volumes should also help to
increase economies of scale and enhance margins. CAO will
also continue to look for opportunistic gains from other types
of transportation fuel to boost its bottom line. Underpinning
the trading business is the company’s over-arching risk policy
that 90% of trading must be backed by physicals, and also
that CAO does not speculate on oil price movements but
enhance profits through supply optimisation.
5) Strong balance sheet to fund M&A opportunities. Besides
organic growth, CAO is also on the lookout for acquisitions
and/or investments to expand its business. This could be in
the form of 1) access/licenses to grow its distribution
network, or 2) equity investments in aviation related assets
such as airport refuelling/pipelines/storage tanks. Key questions raised by investors:
Q1: Will BP look to divest its 20% stake in CAO, and how
would that impact CAO? Management is not aware of any
plans by BP to divest its 20% stake (although BP has been
selling some of its other assets), however they do note that it’s
been 10 years since BP came onboard CAO. CAO has since
learnt a lot (in terms of risk management etc.) from BP, and
over time has also developed its own risk management culture
and practices. Hence, even if BP is no longer a strategic
investor, it would not impact CAO’s risk management
capability. In our view, BP’s divestment could help the liquidity
of CAO if placed to the right investors.
Q2: What is the risk that China will reform aviation fuel
supply into China and CAO loses its monopoly?
Management is of the view that CAO will not lose its
monopoly in the foreseeable future, and that aviation fuel
supply would be one of the last to be reformed, if at all. This
is because CNAF, CAO’s parent company who accords the
perpetual jet fuel import license to CAO, owns all of the
refuelling assets and infrastructure at China’s 210 airports,
representing a very high barrier of entry and is of national
strategic importance. CAO is also CNAF’s only overseas
subsidiary to fulfill the role.
Q3: Why doesn’t CAO pay more dividends given its assetlight, highly cash-generative business model? CAO’s organic
capital expenditure (largely spent on trading/risk
management IT systems) is not more than US$250k per year,
and may be less in some years while its associates are selffunded and provide dividends hence providing annual cash
inflow of c. US$60m. Furthermore, working capital needs are
generally well funded internally (AR days usually equal to AP
days) so only inventory (in contango markets) need to be
funded. Recognising that CAO’s cash coffers have been
accumulating over the last few years (which provides the
company with M&A appetite), CAO has already moved from
paying out annual dividends of 2Scts to a dividend payout of
30% of net profit.
VICKERS SECURITIES
Company Guide
China Aviation Oil
CRITICAL DATA POINTS TO WATCH
Jet Fuel Volumes (m tonnes)
Earnings Drivers:
Sole importer of jet fuel into the PRC with growing international
presence… Leveraging on the network of its parent, China National
Aviation Fuel Group Corporation (CNAF) – a state-owned enterprise
and the largest aviation transportation logistics services provider in
the PRC – China Aviation Oil (Singapore) Corporation Ltd (CAO) has
monopoly in the supply of imported jet fuel (or bonded jet fuel) to
17 international airports in China.
With the backing of its parent, CAO has also expanded its business
to the marketing and supply of jet fuel to airline companies at 41
international airports outside of the PRC, spanning across Asia
Pacific, North America, Europe and the Middle East.
Other Oil Product Volumes (m tonnes)
Owing to its domestic monopoly, CAO should benefit from the
long-term growth of China’s international air travel market.
Coupled with its ongoing international expansion, we expect jet
fuel volumes supplied and traded to grow at a 4.5% CAGR from
c.12m in FY15 to almost 13m by FY17F.
Optimising of margins through trading activities. As CAO enjoys
cost-plus pricing (we estimate gross profit of US$3.02/tonne) for its
China jet fuel supply business, and after hedging downside risk,
CAO will seek to further optimise margins when viable trading
opportunities arise.
Implied Average Jet Fuel Price (USD/bbl)
While opportunities to improve margins are available in both
backwardation and contango markets, CAO generally prefers
contango markets as it allows for superior opportunities for margin
optimisation from the storing and trading of fuels (which also
includes gas oil, fuel oil and avgas).
Management cautioned that the lack of clarity in the underlying oil
market could pose challenges to CAO’s trading business in 2H16.
Sharing similar concerns, we have since lowered our GP/tonne
assumptions by 21% and 16% to US$1.67 and US$1.92 for FY16F
and FY17F respectively.
Contributions from associates, including prized asset SPIA.
Arguably CAO’s best-performing asset, SPIA has never had a cash
call since the group first invested in Shanghai Pudong International
Airport’s exclusive supplier of jet fuel in 2002, and has historically
close to 90% share in the annual income contributions from CAO’s
associated companies. Notably, SPIA alone contributed c.61.3% of
the group’s FY15 profit, and continues to perform firmly as it
contributed c.62% of CAO’s 1H16 net profit.
Gross Profit per Tonne (US$)
Contribution from Associates (US$ m)
With two new runways added in the last 18 months, which has
doubled the capacity of the airport, and additional satellite
concourse expected to be completed by 2019, capacity at China’s
second-largest airport is expected to be raised from 60m to 80m
passengers p.a., which should underpin SPIA’s long-term growth
prospects.
Nearer term, given SPIA’s consistently firm performance - even as
expected air traffic increases from the recent opening of Shanghai
Disneyland have yet to show up, we think that contributions from
the associate should more than offset trading challenges (if any) in
2H16.
ASIAN INSIGHTS
Source: Company, DBS Bank
VICKERS SECURITIES
Page 3
Company Guide
China Aviation Oil
Leverage & Asset Turnover (x)
Balance Sheet:
Strong balance sheet with a net cash position of c.US$169m as at
end-2Q16. With net cash of US$169m even after paying dividends
of US$19.3m in 2Q16, we believe the company has sufficient
firepower with room to gear up further to finance its M&A
opportunities and grow the scale and reach of its business and
profits.
Share Price Drivers:
Progress on the M&A front. While CAO is armed with dry powder
for potential acquisitions and investments, it has yet to announce
significant M&A plans – its last major investment was in 2013,
when the company acquired a 39% stake in refueller CNAF Hong
Kong Refuelling Limited.
Capital Expenditure
Management has shared that they will be looking at both “assetlight” investments, which will allow the group to gain access to air
spaces, customer contracts, strategic alliances and further trading
synergies, as well as “asset-backed” investments (or infrastructure
assets), which may include airport refuelling stations, pipelines
going into airports and storage facilities.
ROE (%)
We believe that the eventual deployment of cash to fund valueaccretive opportunities should lead to a further rerating of the
stock.
Key Risks:
Weaker demand for air travel. Given the group’s exposure to the air
passenger market, events that could significantly dampen travellers’
sentiment, such as the outbreak of diseases and acts of terror, pose
direct threats to the tourism and air travel industry which in turn,
could weigh on global demand for jet fuel.
Forward PE Band (x)
Potential mark-to-market losses for associates. As SPIA and CNAFHKR hold inventories of fifteen days and seven days respectively,
these have to be marked to market. In a declining oil price
environment, these would result in paper losses for these
associates, which add volatility to CAO’s bottom line.
Trading and execution risks. CAO is exposed to a myriad of risks
that are inherent in the lifecycle of trades, which include market
risk, credit risk, and operational risk.
PB Band (x)
Company Background
China Aviation Oil (Singapore) Corporation Ltd (CAO SP) is
principally engaged in the supply and trading of bonded jet fuel,
with monopoly in China and a growing international presence.
Apart from jet fuel, the Group also trades and/or supplies other
transportation fuel (such as fuel oil, gas oil and aviation gas) and
has varying equity stakes in oil-related assets. These assets include
airport refuelling facilities (SPIA and CNAF HKR), pipelines (TSNPEKCL) and storage facilities (Xinyuan and OKYC).
ASIAN INSIGHTS
Page 4
Source: Company, DBS Bank
VICKERS SECURITIES
Company Guide
China Aviation Oil
Key Assumptions
FY Dec
Jet Fuel Volumes (m
Other Oil Product
Implied Average Jet Fuel
Gross Profit per Tonne
Contribution from
Segmental Breakdown
FY Dec
Revenues (US$m)
Middle distillates
Other oil products
Total
Income Statement (US$m)
FY Dec
Revenue
Cost of Goods Sold
Gross Profit
Other Opng (Exp)/Inc
Operating Profit
Other Non Opg (Exp)/Inc
Associates & JV Inc
Net Interest (Exp)/Inc
Exceptional Gain/(Loss)
Pre-tax Profit
Tax
Minority Interest
Preference Dividend
Net Profit
Net Profit before Except.
EBITDA
Growth
Revenue Gth (%)
EBITDA Gth (%)
Opg Profit Gth (%)
Net Profit Gth (Pre-ex) (%)
Margins & Ratio
Gross Margins (%)
Opg Profit Margin (%)
Net Profit Margin (%)
ROAE (%)
ROA (%)
ROCE (%)
Div Payout Ratio (%)
Net Interest Cover (x)
2013A
2014A
2015A
2016F
2017F
10.4
6.07
151
3.19
46.5
12.1
8.29
141
1.34
43.2
11.9
8.28
74.4
1.76
42.3
12.2
9.94
56.6
1.67
58.8
13.0
10.4
62.0
1.92
62.9
2013A
2014A
2015A
2016F
2017F
12,456
3,116
15,572
13,508
3,553
17,061
7,010
1,978
8,987
5,493
1,806
7,299
6,377
2,077
8,454
2013A
2014A
2015A
2016F
2017F
15,572
(15,519)
52.5
(21.2)
31.3
0.0
46.5
(5.3)
0.0
72.4
(2.2)
0.0
0.0
70.2
70.2
79.5
17,061
(17,034)
27.4
(16.5)
10.9
0.0
43.2
(3.1)
0.0
51.0
(1.9)
0.0
0.0
49.2
49.2
55.6
8,987
(8,952)
35.4
(13.1)
22.3
0.0
42.3
(1.0)
0.0
63.6
(2.3)
0.0
0.0
61.3
61.3
66.2
7,299
(7,262)
37.0
(16.8)
20.2
0.0
58.8
(0.5)
0.0
78.5
(3.1)
0.0
0.0
75.4
75.4
80.6
8,454
(8,409)
45.0
(18.4)
26.5
0.0
62.9
(0.5)
0.0
89.0
(3.6)
0.0
0.0
85.4
85.4
91.0
5.2
10.3
11.5
6.1
9.6
(30.1)
(65.1)
(30.0)
(47.3)
19.1
104.8
24.7
(18.8)
21.7
(9.4)
23.0
15.8
12.9
31.0
13.3
0.3
0.2
0.5
14.3
4.2
5.9
19.4
5.9
0.2
0.1
0.3
9.1
3.2
1.9
26.5
3.5
0.4
0.2
0.7
10.7
5.5
3.7
29.8
21.5
0.5
0.3
1.0
12.2
8.9
3.1
30.0
40.5
0.5
0.3
1.0
12.6
9.5
3.7
30.0
53.0
We recently adjusted our
GP/tonne assumptions
downward on the
expectation of a more
challenging trading
environment in 2H16.
Tax rate to remain low
as CAO receives tax
incentives under
Singapore’s Global
Trader Programme.
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 5
Company Guide
China Aviation Oil
Quarterly / Interim Income Statement (US$m)
FY Dec
2Q2015
3Q2015
Revenue
Cost of Goods Sold
Gross Profit
Other Oper. (Exp)/Inc
Operating Profit
Other Non Opg (Exp)/Inc
Associates & JV Inc
Net Interest (Exp)/Inc
Exceptional Gain/(Loss)
Pre-tax Profit
Tax
Minority Interest
Net Profit
Net profit bef Except.
EBITDA
4Q2015
1Q2016
2Q2016
2,524
(2,515)
9.20
(3.9)
5.36
0.0
13.5
(0.3)
0.0
18.6
(0.8)
0.0
17.8
17.8
18.9
2,399
(2,386)
12.9
(4.1)
8.80
0.0
9.73
(0.2)
0.0
18.3
(0.6)
0.0
17.7
17.7
18.5
1,973
(1,965)
8.00
(5.7)
2.30
0.0
9.75
(0.2)
0.0
11.9
(0.4)
0.0
11.4
11.4
12.0
1,464
(1,451)
13.2
(2.3)
10.8
0.0
14.2
(0.1)
0.0
24.9
(0.7)
0.0
24.2
24.2
25.0
3,023
(3,013)
9.90
(4.3)
5.62
0.0
19.4
(0.2)
0.0
24.8
(1.2)
0.0
23.6
23.6
25.0
21.3
24.0
(8.9)
23.9
(4.9)
(1.7)
64.2
(0.3)
(17.8)
(35.0)
(73.9)
(35.6)
(25.8)
107.7
371.7
111.6
106.5
(0.1)
(48.1)
(2.2)
0.4
0.2
0.7
0.5
0.4
0.7
0.4
0.1
0.6
0.9
0.7
1.6
0.3
0.2
0.8
Balance Sheet (US$m)
FY Dec
2013A
2014A
2015A
2016F
2017F
Net Fixed Assets
Invts in Associates & JVs
Other LT Assets
Cash & ST Invts
Inventory
Debtors
Other Current Assets
Total Assets
7.38
268
9.90
56.3
113
1,267
0.0
1,721
6.79
270
9.96
94.3
38.1
959
0.0
1,379
6.21
266
9.43
171
56.8
337
0.0
846
5.64
275
8.70
235
46.1
281
0.0
851
5.06
285
7.97
284
53.4
313
0.0
948
ST Debt
Creditor
Other Current Liab
LT Debt
Other LT Liabilities
Shareholder’s Equity
Minority Interests
Total Cap. & Liab.
28.6
1,163
0.37
0.0
6.23
524
0.0
1,721
0.0
819
0.02
0.0
6.24
554
0.0
1,379
0.0
247
0.01
0.0
6.16
593
0.0
846
0.0
196
3.15
0.0
6.16
645
0.0
851
0.0
234
3.56
0.0
6.16
705
0.0
948
Non-Cash Wkg. Capital
Net Cash/(Debt)
Debtors Turn (avg days)
Creditors Turn (avg days)
Inventory Turn (avg days)
Asset Turnover (x)
Current Ratio (x)
Quick Ratio (x)
Net Debt/Equity (X)
Net Debt/Equity ex MI (X)
Capex to Debt (%)
Z-Score (X)
217
27.7
29.9
27.6
1.5
9.2
1.2
1.1
CASH
CASH
0.5
NA
179
94.3
23.8
21.2
1.6
11.0
1.3
1.3
CASH
CASH
N/A
NA
147
171
26.3
21.7
1.9
8.1
2.3
2.1
CASH
CASH
N/A
NA
127
235
15.4
11.1
2.6
8.6
2.8
2.6
CASH
CASH
N/A
NA
129
284
12.8
9.3
2.2
9.4
2.7
2.5
CASH
CASH
N/A
NA
Growth
Revenue Gth (%)
EBITDA Gth (%)
Opg Profit Gth (%)
Net Profit Gth (Pre-ex) (%)
Margins
Gross Margins (%)
Opg Profit Margins (%)
Net Profit Margins (%)
Contribution from SPIA alone
represented > 60% of 1H16
net profit.
With net cash of
US$169m as at 1H16,
CAO is well able to
finance value-accretive
M&A opportunities
internally, if they arise.
Source: Company, DBS Bank
ASIAN INSIGHTS
Page 6
VICKERS SECURITIES
Company Guide
China Aviation Oil
Cash Flow Statement (US$m)
FY Dec
Pre-Tax Profit
Dep. & Amort.
Tax Paid
Assoc. & JV Inc/(loss)
Chg in Wkg.Cap.
Other Operating CF
Net Operating CF
Capital Exp.(net)
Other Invts.(net)
Invts in Assoc. & JV
Div from Assoc & JV
Other Investing CF
Net Investing CF
Div Paid
Chg in Gross Debt
Capital Issues
Other Financing CF
Net Financing CF
Currency Adjustments
Chg in Cash
Opg CFPS (S cts)
Free CFPS (S cts)
2013A
2014A
2015A
2016F
2017F
72.4
1.80
(2.3)
(46.5)
(97.5)
1.20
(70.8)
(0.1)
0.0
(5.0)
38.8
(1.3)
32.4
(11.6)
26.9
0.0
(2.0)
13.4
0.26
(24.9)
4.22
(11.2)
51.0
1.50
(2.6)
(43.2)
36.1
4.34
47.2
(0.2)
0.0
0.0
35.2
0.07
35.0
(13.7)
(28.6)
0.0
(1.6)
(43.9)
(0.4)
38.0
1.76
7.43
63.6
1.56
(2.2)
(42.3)
33.1
(1.7)
52.1
(0.3)
0.0
0.0
37.2
0.19
37.2
(12.8)
0.0
0.0
(0.3)
(13.0)
(0.1)
76.2
3.00
8.20
78.5
1.56
0.0
(58.8)
16.4
0.0
37.7
(0.3)
0.0
0.0
49.9
0.0
49.6
(22.6)
0.0
0.0
0.0
(22.6)
0.0
64.7
3.37
5.93
89.0
1.56
(3.1)
(62.9)
(2.4)
0.0
22.1
(0.3)
0.0
0.0
52.9
0.0
52.6
(25.6)
0.0
0.0
0.0
(25.6)
0.0
49.1
3.86
3.45
Source: Company, DBS Bank
Target Price & Ratings History
Source: DBS Bank
Analyst: Paul YONG CFA
Singapore Research Team
ASIAN INSIGHTS
VICKERS SECURITIES
Page 7
Company Guide
China Aviation Oil
DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
Completed Date: 30 Aug 2016 11:11:45
Dissemination Date: 30 Aug 2016 15:42:55
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,
its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated
in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS
Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,
the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to
change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard
to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of
addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal
or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of
profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This
document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or
persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have
positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and
other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can
be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.
The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it
may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no
obligation to update the information in this report.
This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned
schedule or frequency for updating research publication relating to any issuer.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on
which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual
results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED
UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a)
(b)
such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the
commodity referred to in this report.
DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research
department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction
in the past twelve months and does not engage in market-making.
ASIAN INSIGHTS
Page 8
VICKERS SECURITIES
Company Guide
China Aviation Oil
ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in the report. The DBS Group has
procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of
research reports. As of 30 Aug 2016, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold
interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). The research analyst(s)
responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and
procedures are in place to ensure that confidential information held by either the research or investment banking function is handled
appropriately.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1.
DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates do not have a proprietary
position in the securities recommended in this report as of 31 Jul 2016.
2.
3.
DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.
Compensation for investment banking services:
DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a
manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further
information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document
should contact DBSVUSA exclusively.
RESTRICTIONS ON DISTRIBUTION
General
This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of
or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would
be contrary to law or regulation.
Australia
This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd
(“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the
Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are
regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws.
Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
Hong Kong
This report is being distributed in Hong Kong by or on behalf of, and is attributable to DBS Vickers (Hong Kong) Limited
which is licensed and regulated by the Hong Kong Securities and Futures Commission and/or by DBS Bank (Hong Kong)
Limited which is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission. Where this
publication relates to a research report, unless otherwise stated in the research report(s), DBS Bank (Hong Kong) Limited is
not the issuer of the research report(s). This publication including any research report(s) is/are distributed on the express
understanding that, whilst the information contained within is believed to be reliable, the information has not been
independently verified by DBS Bank (Hong Kong) Limited. This report is intended for distribution in Hong Kong only to
professional investors (as defined in the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) and
any rules promulgated thereunder.)
For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at equityresearch@dbs.com.
Indonesia
This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.
Malaysia
This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from
ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this
report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised
that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected
and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with
any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform
or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They
may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate
advisory and other services from the subject companies.
Wong Ming Tek, Executive Director, ADBSR
ASIAN INSIGHTS
VICKERS SECURITIES
Page 9
Company Guide
China Aviation Oil
Singapore
This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No.
198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the
Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign
entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial
Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert
Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such
persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters
arising from, or in connection with the report.
Thailand
This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are
only intended for institutional clients only and no other person may act upon it.
United Kingdom
This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore.
This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised
and regulated by the Financial Conduct Authority in the United Kingdom.
In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and
associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in
any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is
directed at persons having professional experience in matters relating to investments. Any investment activity following
from this communication will only be engaged in with such persons. Persons who do not have professional experience in
matters relating to investments should not rely on this communication.
Dubai
This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC
rd
Branch) having its office at PO Box 506538, 3 Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial
Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services
Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other
person may act upon it.
United States
This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s)
named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The
research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a
subject company, public appearances and trading securities held by a research analyst. This report is being distributed in
the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major
U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as
DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities
referred to herein should contact DBSVUSA directly and not its affiliate.
Other jurisdictions
In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified,
professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.
DBS Bank Ltd
12 Marina Boulevard, Marina Bay Financial Centre Tower 3
Singapore 018982
Tel. 65-6878 8888
e-mail: equityresearch@dbs.com
Company Regn. No. 196800306E
ASIAN INSIGHTS
Page 10
VICKERS SECURITIES