CGS International
August 18, 2025
China Aviation Oil: Soaring on Volume, Margins, and Sustainable Fuel Ambitions

Introduction: A Compelling Entry Point for China Aviation Oil

China Aviation Oil (CAO), a major player in the Asia-Pacific aviation fuel market, is capturing investor attention with strong volume growth, margin improvements, and a focus on sustainable aviation fuel (SAF). Trading at approximately 8.5x CY26F P/E—below its 10-year historical mean—CAO is positioned as an attractive value opportunity. This detailed update covers CAO’s financial performance, market outlook, peer comparison, and ESG (environmental, social, and governance) initiatives, based on the latest research from CGS International as of August 18, 2025.

1H25 Results: Outperforming Expectations with Volume and Margin Gains

CAO’s 1H25 performance demonstrates robust operational execution:

• Net Profit: US\$50 million, forming ~60% of full-year estimates and beating consensus.
• Revenue: Up 14% YoY to US\$8.6 billion, driven by a 35% surge in trading volume, offset by a 16% drop in ASP, reflecting lower oil prices.
• Gross Profit Margin (GPM): Improved from 0.32% to 0.35%, boosting gross profit by 26% YoY.
• Associates’ Contribution: Up 14% YoY to US\$27 million, with strong refueling volumes at Shanghai Pudong (SPIA) and higher input from Oilhub Korea Yeosu (OKYC).

Outlook: Aviation Recovery and Margin Upside, but Oil Price Headwinds

CAO’s growth prospects remain underpinned by China’s ongoing aviation recovery and regulatory tailwinds:

• International outbound flights from China hit ~85% of 2019 levels by mid-August 2025, up from ~72% a year prior.
• Favorable travel policies and rising passenger numbers are expected to sustain volume and earnings momentum in 2H25.
• Margin upside could materialize as the EU’s ReFuelEU mandate boosts SAF blending requirements—minimum 2% in 2025, climbing to 6% by 2030. SAF still represents a low single-digit share of CAO’s trading volume, but is set for growth.
• Oil price weakness poses a risk. Brent crude dipped to US\$67/bbl in early August, down 16% YoY, which could offset some gains, particularly associate contributions from SPIA.

Valuation, Earnings Revisions, and Key Catalysts

CGS International maintains an “Add” rating on CAO, with the target price raised to S\$1.45, based on a 10x CY26F P/E. The stock’s current P/E of 8.5x is about 0.5 standard deviations below its 10-year average, supporting the value case. Core EPS estimates for FY25-27F have been lifted by 5-7%, reflecting improved margins from SAF trading, partly offset by lower profits from associates.

• Yield: 3-4% dividend yield forecast over FY25-27F.
• Potential Catalysts: Faster recovery in China’s outbound flights, sustained GPM improvement, higher oil prices.
• Key Risks: Industry deregulation in China, stiffer competition in markets where CAO has a smaller footprint (e.g., US and Europe).

Financial Summary: Growth Trajectory and Ratios

Peer Comparison: How Does CAO Stack Up?

CAO’s valuation remains attractive compared to regional peers in transportation fuel and airport services. Here’s a snapshot of the latest peer metrics:

Balance Sheet and Cash Flow: Strong Liquidity and Capital Position

CAO’s balance sheet is robust, with zero debt and healthy cash reserves. Key indicators:

• Total cash and equivalents: US\$373m (2023A) to US\$586m (2027F)
• Shareholders’ equity: US\$948m (2023A) rising to US\$1,190m (2027F)
• Net cash per share: US\$0.43 (2023A), forecast to reach US\$0.68 (2027F)
• Operating EBITDA margin: Expanding from 0.182% (2023A) to 0.253% (2027F)
• ROE: Improving from 6.36% (2023A) to 8.72% (2027F)

ESG Initiatives: Progress on Sustainability and Risk Management

CAO has made notable strides on the ESG front:

• Set Scope 1 and 2 emissions targets, aiming for a 30% reduction by 2030 (from 2023 levels) and net zero by 2050.
• Enhanced efforts to measure Scope 3 emissions and expanded SAF trading in line with global sustainability trends.
• ESG Score: LSEG rates CAO at D+ across environment, social, and governance metrics.
• Post-2005 reforms: Following a major derivatives scandal, CAO overhauled its management, risk controls, and board structure. Trading and risk limits are now clearly defined, although the revenue mix between supply and trading is not fully disclosed—posing some forecasting uncertainty.

Shareholding Structure and Market Performance

• Major Shareholders: China National Aviation Fuel Group (51.3%), BP Investments Asia (20.2%)
• Market Cap: US\$818.6 million
• Free Float: 28.5%
• Recent Price Performance: 1M +22.0%, 3M +47.0%, 12M +39.4%

Conclusion: Investment Case for China Aviation Oil

CAO offers a compelling blend of earnings recovery, margin expansion from sustainable aviation fuel, and attractive valuation. With the aviation sector in China on a strong rebound, CAO’s two-pronged growth in volume and margin is well-supported. While oil price volatility and regional competition remain risks, the company’s robust financials, prudent capital management, and ESG improvements make it an appealing prospect for value-oriented investors.

Recommendation Framework

• Add: Expected total return >10% over 12 months (CAO’s current rating)
• Hold: Expected return between 0% and +10%
• Reduce: Expected return <0%

The target price horizon is 12 months, with total return defined as price appreciation plus forward net dividend yield.

Distribution of Ratings (as of June 30, 2025)

• Add: 70.6%
• Hold: 20.5%
• Reduce: 8.9%

Investors seeking exposure to the aviation fuel sector’s China growth story, and those with an eye on ESG progress, should keep CAO firmly on their radar.