SINGAPORE (May 12): RHB Group Research is reiterating its “buy” recommendation on China Aviation Oil (CAO) with a target price of $1.25, as the company remains a good proxy to the Chinese aviation industry.

In a Tuesday report, analyst Shekhar Jaiswal says, “We hosted management for a tele-non-deal roadshow (NDR) and came back feeling positive about its earnings revival from 4Q20 – aided by gradual improvements in China’s domestic aviation traffic. CAO’s monopolistic position there and cost-plus business model should continue to ensure positive FCF generation.”

As the Covid-19 situation improves in China, there is scope for an earlier-than-expected recovery in domestic aviation traffic. Aviation regulator Civil Aviation Administration of China noted m-o-m improvement in April aviation traffic.

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