SINGAPORE (July 12): UOB is maintaining its “buy” call for China Aviation Oil (CAO), with a target price of $1.85. This comes on the back of increased optimism arising from the group’s stake in the exclusive refueller for Shanghai Pudong International Airport (SPIA), according to a Tuesday report.

Slated to be one of the world’s top three busiest airports in 2019, SPIA is a fast growing hub for both passenger and cargo traffic.

The opening of Shanghai Disneyland is expected to draw 3 million more air passengers annually, says UOB analyst Edison Chen. More is expected once expansion work for Disneyland has been completed, he adds.

Coupled with the increasing importance of Shanghai as a global business hub, this will attract more air travellers to Shanghai.

The research house expects recurring income arising from SPIA to grow at a CAGR of 10% from US$38.9 million ($52.5 million) in 2015 to US$51.7 million in 2018, accounting for more than 50% of group profit.

On a peer comparison, UOB considers SPIA to be a “much superior” and attractive proposition to its Thai counterpart Bangkok Aviation Fuel Service due to its monopolistic status, higher historical volume growth and its significantly higher net profit based on similar volumes.

Looking ahead, the research house believes that CAO should trade closer to peers’ average 2017F PE of 18x due to a better outlook and greater market recognition of the value of CAO.

As at 10.28am, CAO was up 1.5% at $1.395.