Broker: CGS International Securities
Date of Report: August 18, 2025
China Aviation Oil: Volume Growth, Margin Expansion, and ESG Momentum Fuel Attractive Upside
Executive Summary: Investment Case for China Aviation Oil
China Aviation Oil (CAO), a leading Singapore-listed jet fuel and oil trading company, continues to deliver robust growth in volume and margin despite volatile oil prices. Trading at approximately 8.5x CY26F P/E—below its historical mean—CAO offers a compelling investment entry point. The company’s 1H25 results surpassed expectations, driven by a surge in trading volume and improved margins from sustainable aviation fuel (SAF) trading. With a target price raised to S\$1.45, CAO stands out for its earnings recovery trajectory, attractive dividend yield, and undervalued stock price.
Strong 1H25 Performance: Surpassing Market Expectations
CAO reported a 1H25 profit attributable to shareholders (PATMI) of US\$50 million, forming 60% of full-year estimates and beating consensus expectations. Revenue climbed 14% year-on-year to US\$8.6 billion, propelled by a 35% increase in trading volume. This was partially offset by a 16% drop in average selling prices (ASP) due to lower oil prices. Gross profit margin (GPM) improved from 0.32% to 0.35%, lifting gross profit by 26%, largely on the back of robust SAF trading in Europe. Profits from associates also grew 14%, supported by higher refuelling volumes at Shanghai Pudong International Airport Aviation Fuel Supply Company Ltd (SPIA) and Oilhub Korea Yeosu Co Ltd (OKYC).
| Metric |
1H25 |
1H24 |
YoY Change |
2H24 |
HoH Change |
FY25F |
| Revenue (US\$m) |
8,560.5 |
7,535.5 |
+13.6% |
7,983.0 |
+7% |
17,239.5 |
| Gross Profit (US\$m) |
30.4 |
24.2 |
+25.6% |
17.7 |
+0.7% |
48.7 |
| GPM (%) |
0.35% |
0.32% |
n.m. |
0.22% |
n.m. |
0.28% |
| Net Profit (US\$m) |
50.0 |
42.3 |
+18.4% |
35.8 |
+0.4% |
84.0 |
| Core EPS (US\$) |
0.0582 |
0.0493 |
+18.0% |
0.0418 |
+0.4% |
0.0976 |
2H25 Outlook: Growth Drivers and Risks
– **Volume Upside:** International outbound flights from China reached 85% of 2019 levels by mid-August 2025, up from 72% a year earlier, supported by favorable travel policies and increased connectivity. This rebound is expected to sustain strong earnings momentum into 2H25, benefiting both CAO and SPIA. – **Margin Expansion:** Margin upside is likely from increased SAF trading, fueled by the EU’s ReFuelEU Aviation mandate requiring a minimum 2% SAF blend in 2025 and 6% by 2030. SAF currently contributes a low single-digit share to trading volume but is growing. – **Oil Price Headwinds:** Brent crude fell to US\$67/bbl in August 2025, 16% lower year-on-year due to rising OPEC+ supply and subdued demand. This may dampen SPIA’s associate profit contributions, partially offsetting margin gains.
Valuation, Price Performance, and Shareholder Structure
CAO is rated “Add” with a higher target price of S\$1.45, representing an 18.9% upside from the current price of S\$1.22. The company offers a 3-4% dividend yield for FY25-27F and trades at 8.5x CY26F P/E, 0.5 standard deviations below its 10-year mean. Price performance has been strong, with 1M, 3M, and 12M absolute returns of 22.0%, 47.0%, and 39.4%, respectively.
| Shareholder |
% Held |
| China National Aviation Fuel Group |
51.3% |
| BP Investments Asia |
20.2% |
Financial Summary: Key Metrics and Growth Rates
CAO’s financial outlook remains robust, with consistent revenue and net profit growth projected through 2027. The company’s balance sheet shows strong liquidity, low leverage, and rising returns on equity.
| Metric |
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| Revenue (US\$m) |
14,430 |
15,519 |
17,286 |
18,086 |
18,835 |
| Operating EBITDA (US\$m) |
26.21 |
32.24 |
38.67 |
42.59 |
47.72 |
| Net Profit (US\$m) |
58.9 |
79.0 |
88.0 |
94.9 |
100.6 |
| Core EPS (US\$) |
0.07 |
0.09 |
0.10 |
0.11 |
0.12 |
| Dividend Yield (%) |
3.95 |
2.98 |
3.26 |
3.47 |
3.68 |
| ROE (%) |
6.36 |
8.17 |
8.64 |
8.76 |
8.72 |
Peer Comparison: How CAO Stacks Up Against Rivals
CAO compares favorably to both transportation fuel suppliers and airport service companies on P/E, P/BV, ROE, and dividend yield. The following table provides a snapshot of CAO and its peers:
| Company |
Ticker |
Recommendation |
Price |
Target Price |
Market Cap (US\$m) |
CY25F P/E |
CY26F P/E |
CY25F P/BV |
CY26F P/BV |
ROE (%) |
Dividend Yield (%) |
| China Aviation Oil |
CAO SP |
Add |
1.22 |
1.45 |
819 |
9.3 |
10.4 |
0.78 |
0.83 |
8.6 |
3.3 |
| Bangkok Aviation Fuel Services |
BAFS TB |
NR |
8.70 |
na |
170 |
13.8 |
8.4 |
0.94 |
1.90 |
7.2 |
5.1 |
| World Kinect Corp |
WKC US |
NR |
25.72 |
na |
1,405 |
11.4 |
9.3 |
0.87 |
3.46 |
-4.3 |
3.0 |
| Airports of Thailand |
AOT TB |
Reduce |
37.75 |
25.00 |
16,630 |
29.5 |
28.1 |
4.06 |
4.28 |
14.1 |
2.0 |
| Beijing Capital International |
694 HK |
NR |
3.03 |
na |
1,803 |
126.3 |
28.9 |
0.95 |
-9.81 |
12.4 |
0.1 |
| SATS Ltd |
SATS SP |
Add |
3.26 |
3.60 |
3,798 |
19.0 |
24.6 |
1.78 |
1.92 |
5.9 |
1.6 |
| Shanghai International Airport |
600009 CH |
NR |
31.80 |
na |
11,048 |
35.3 |
29.1 |
1.84 |
4.71 |
14.1 |
1.2 |
ESG Progress: Sustainability and Governance
CAO has taken strategic steps to enhance its ESG profile: – Set Scope 1 and 2 emission reduction targets for 2030, aiming for net-zero by 2050. – Expanded measurement of Scope 3 emissions and increased SAF trading. – The LSEG ESG combined score remains at D+, with component scores of D+ across environment, social, and governance.
Notably, CAO experienced a major derivatives scandal and bankruptcy in 2004, leading to a comprehensive overhaul of its risk management and governance. The company now maintains diversified trading exposure and defined risk limits. However, undisclosed trading revenue mix still presents some forecast uncertainty.
Balance Sheet and Key Ratios: Financial Strength
CAO boasts strong liquidity, zero net debt, and rising book value per share. Key ratios reflect its operational efficiency and prudent financial management.
| Metric |
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| Total Cash & Equivalents (US\$m) |
373 |
500 |
502 |
542 |
586 |
| Shareholders’ Equity (US\$m) |
948 |
986 |
1,050 |
1,118 |
1,190 |
| Net Cash Per Share (US\$) |
0.43 |
0.58 |
0.58 |
0.63 |
0.68 |
| BVPS (US\$) |
1.10 |
1.15 |
1.22 |
1.30 |
1.38 |
| ROIC (%) |
4.4 |
6.4 |
11.5 |
10.7 |
11.8 |
Risks and Catalysts: What Could Move the Stock?
– **Upside Catalysts:** Strong recovery in China outbound flight volumes, sustained margin improvement, higher-than-expected oil prices boosting associate profits. – **Downside Risks:** Major deregulation of China’s jet fuel sector, intensifying competition in regions where CAO has a smaller footprint (US, Europe), significant trading gains/losses.
Conclusion: Why CAO Deserves Investor Attention
China Aviation Oil presents an attractive investment proposition, with strong fundamentals, improving margins, and a credible commitment to ESG. Its valuation discount to historical averages, robust dividend yield, and resilient growth prospects make it a standout in the aviation and fuel supply sector. Investors should monitor developments in China’s aviation recovery, SAF adoption, and oil price trends for potential re-rating opportunities.
Recommendation Framework
– **Add:** Total return expected to exceed 10% over the next 12 months. – **Hold:** Total return expected between 0% and +10%. – **Reduce:** Total return expected to fall below 0%.
CAO is currently rated “Add,” reflecting its strong upside potential and attractive risk-reward profile.
