Will China Aviation Oil's stake in an exclusive refueller save its bacon in 2016?

It accounted for 63% of 2015's net profits.

With the opening of Shanghai Disneyland expected to draw in 3m more air passengers annually, analysts believe that China Aviation Oil’s (CAO)'s crown jewel in 2016 is its stake in the exclusive refueller for Shanghai Pudong International Airport (SPIA).

According to a report by UOB Kay Hian, on top of the influx of Disneyland-bound traffic, Shanghai’s status as a global business hub is also expected to lure in more air travellers passing through SPIA. Already, SPIA is building a new terminal to handle the increased traffic, push SPIA to be one of the world’s top three busiest airports in 2019.

CAO’s 33% stake in the exclusive refueller for SPIA meant that CAO raked in US$38.9m (roughly $52.36), or 63% of CAO’s net profit in 2015.

UOB Kay Hian also argues that SPIA associate is superior to its Thai peer, Bangkok Aviation Fuel Service (BAFS).

“The SPIA associate: a) posts a higher historical volume growth, b) enjoys a monopoly, and c) delivers more than 4x net profit than BAFS’ despite similar volumes. If listed, we believe the SPIA associate should trade closer to BAFS’s 24x 2015 PE, given greater growth potential. As such, we add BAFS into the current peer list of CAO,” UOB Kay Hian states.

Further, UOB Kay Hian remains upbeat on the outlook for SPIA associate.

“Going forward, we expect this recurring income for CAO to grow at a CAGR of 10% from US$38.9m in 2015 to US$51.7m in 2018, accounting for more than 50% of group profit,” UOB Kay Hian notes.

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