CAO enjoys record results on booming air travel

02 March 2017, Week 08 Issue 632

China Aviation Oil (Singapore), also known as CAO, reported a 30.2% rise in revenues in its 2016 results released last week.

The Singapore-listed trading company, China’s sole jet fuel importer and the largest jet fuel trader in Asia, saw its revenue climb from US$8.99 billion in 2015 to US$11.7 billion last year.

Growth in CAO’s oil product trading volumes was even greater, however, climbing 61.5% year on year to a record 32.6 million tonnes. While the strong rise did not fully translate into higher revenues, the results are noteworthy because they reflect the dramatic rise in demand for jet fuel in China, CAO’s core market.

CAO’s gross profit for 2016 jumped 24.3% to US$44.1 million, on the back of increased jet fuel volumes supplied to China, as well as gains from the optimisation of trading activities and operational efficiencies. The group said efficiency gains were achieved in its global integrated supply and trading value chain.

Net profit rose 45.1% to a record US$88.9 million owing to the underlying improvement in performance and to a significant increase in contributions from associates. CAO also said net profits were boosted through successful outcomes from its diversification strategy, which included moves into crude oil sales to Chinese refineries and fuel sales to Middle Eastern customers.\

Profit contributions

CAO is majority-owned by state-run China National Aviation Fuel (CNAF) and supplies jet fuel to many of China’s airports. It has a particularly close relationship with Shanghai Pudong International Airport. Profits from CAO’s associate, Shanghai Pudong International Airport Aviation Fuel Supply (SPIA), grew by 56% to US$60.6 million in 2016 from US$38.9 million 2015. Cao said this was owing to higher refuelling volumes and inventory gains.

CAO’s South Korean oil products storage associate, Oilhub Korea Yeosu Co. (OKYC), in which CAO has a 26% shareholding, contributed US$4.1 million in profits compared with US$1.4 million in 2015. OKYC started operations in 2013, but has already added value to CAO’s overseas operations. The rise in OKYC’s results was owing to higher operating profits from its tank storage leasing activities and lower mark-to-market loss from currency interest rate swap contracts.

CAO saw results from some of its smaller-scale subsidiaries remain roughly stable.

Share of profits from the activities of China National Aviation Fuel TSN-PEK Pipeline Transportation remained unchanged at US$2.2 million. The weaker exchange rate of the yuan against the US dollar held results down, CAO said, despite higher underlying profits generated from increased pipeline transportation volumes.

CAO’s associate CNAF Hong Kong Refuelling reported a loss of US$910,000. The company started operations in 2015 and will continue to seek to build up market share as the third licensed refueller at Hong Kong International Airport.

The fundamentals

CAO’s CEO, Meng Fanqiu, said that despite uncertainties in global oil markets, “we are pleased to report a record year as CAO benefited from the robust growth in China’s civil aviation industry and the global aviation industry.”

Fanqiu added that CAO had “sound and growing operating fundamentals”. Referring to CAO’s move into other operations in Asia and beyond, he said the strategy of diversifying products, customer base and markets had also improved results.

Growth of activity may be expected to continue at CAO, according to the CEO. Fanqiu said that, moving forward, CAO aimed to expand its aviation marketing business outside mainland China.

CAO will continue to “build a global supply and trading network ... explore investments and M&A opportunities in strategic oil-related assets ... which offer synergies with our trading businesses in Asia-Pacific, North America and Europe.”

He added that this was in line with the company’s vision to be a “top-tier” global integrated transportation fuels provider.

 

Edited by

Andrew Kemp

Editor

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