Trading of other oil products blemish bright outlook for China Aviation Oil

Margins for this business are highly unpredictable.

Trading of other oil products remains a wildcard for China Aviation Oil (CAO), as analysts believe that margins for this business is thin and quite volatile.

According to a report by RHB, the outlook for this unit of CAO’s operations is difficult to pin down.

“While the supply and trading of jet fuel oil remain the core business for CAO, a gradual increase in trading of other related oil products is one of the key growth strategies for the long term,” the report stated.

CAO intends to bolster business presence across the whole supply chain to boost margins for this business.

In addition, while there has been a steep spike in trading volume for other oil products in the first half of 2016, on an ongoing basis, UOB Kay Hian estimates a 8% per annum volume growth during the forecast period.

On the flip side, CAO's monopoly position on the supply of imported jet fuel to China's aviation industry means it will rake in the big bucks from the long term growth of China's international air travel market. In addition, the company’s Chinese associate is expected to further prop up cash flows.