Broker Name: CGS International
Date of Report: February 20, 2026
Excerpt from CGS International report.
Report Summary
- China Aviation Oil (CAO) stands to benefit from the merger of its parent company China National Aviation Fuel Group (CNAF) with Sinopec, potentially unlocking up to 40% valuation upside if CAO is positioned as the group’s dedicated international fuel trading platform.
- The bull case envisions a sixfold expansion in trading volumes and margin improvements through integration and operational synergies, while the bear case highlights risks of CAO being relegated to an execution-only trading desk with diminished strategic relevance.
- A sum-of-parts (SOP) valuation approach raises the target price to S\$2.63, with a bull case of S\$3.76, and a bear case of S\$1.09, underpinned by CAO’s strong net cash position and associate value.
- Short-term outlook is positive with strong 2H25 net profit expected, but FY26 could see flat growth due to China–Japan flight disruptions, with recovery anticipated in FY27.
- The possibility of a general offer (GO) exists if a change of control occurs at the parent level, potentially leading to a revaluation of CAO’s balance sheet assets closer to intrinsic value.
- ESG efforts are underway, but CAO’s LSEG ESG score remains low; the company is working to improve its emissions profile and expand sustainable aviation fuel initiatives.
- CAO’s financials reflect a robust balance sheet, resilient margins, and strong operating cash flow, with no debt and increasing free cash flow to equity.
- Key risks include loss of autonomy post-merger, possible talent outflows, and minority shareholder value dilution if CAO’s mandate is narrowed within the group.
Above is an excerpt from a report by CGS International. Clients of CGS International can be the first to access the full report from the CGS International website: https://www.cgs-cimb.com
