RHB Group Research has kept “buy” on China Aviation Oil (CAO) albeit with a lower target price of $1.15 from $1.20 as China faces a disruption in domestic aviation traffic in August.
The disruption was brought about by a resurgence in Covid-19 cases across several provinces.
On this, analyst Shekhar Jaiswal has also lowered his profit estimates for the FY2021 by 11% as he expects CAO’s earnings for the 2HFY2021 to “disappoint”.
See also: Analysts lower China Aviation Oil's TP to $1.20 on lower-than-expected 1H21 earnings
“Any material recovery in China’s international aviation traffic is likely to happen next year,” writes Jaiswal in an Aug 26 report.
To be sure, Shanghai Pudong International Airport’s cargo deliveries were disrupted and delayed amid the detection of Covid-19 cases at its cargo operations.
Since the first Delta variant outbreak in Nanjing in July, the virus has spread to other provinces, which has triggered air travel restrictions in early August.
Families had to cancel their travel plans in July to August, which tends to be a peak season for travel.
While Jaiswal estimates that CAO’s profit in the FY2022 will grow by 46% y-o-y, a return to pre-Covid-19-level earnings could take around two to three years.
“CAO’s FY2022 price-to-earnings (P/E) is at 8.2 times, implying only 0.2 times FY2022 price earnings growth (PEG). With its net cash position equivalent to [around] 46% of its market cap, the stock is trading at a compelling 4.4 times FY2022 P/E on an ex-cash basis,” he writes.
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As at 12.31pm, shares in CAO are trading 1.5 cents higher or 1.55% up at 98 cents, with an FY2021 P/B of 0.7 times and a dividend yield of 2.7%, according to RHB’s estimates.