Shares of China Aviation Oil (CAO) surged by more than 4 per cent on Tuesday morning following reports of potential merger talks between Sinopec, China’s leading oil refiner, and CNAF, the parent company of CAO. As of 9:28 am, CAO's stock traded at S$1.61 on the Singapore Exchange, up approximately 4.5 per cent, later easing slightly but remaining higher than previous levels.
According to sources cited by Bloomberg, Sinopec is expected to absorb all of CNAF’s assets and operations should the merger proceed. CNAF owns a 51% stake in CAO and occasionally balances supplies through imports and exports via trading arms. CAO has also announced that its controlling shareholder will undergo corporate restructuring with an unspecified conglomerate. Negotiations are ongoing, but no guarantee has been given that the deal will finalize.
The company’s share price has risen over 80 per cent in the past six months, driven by strong half-year financial results reporting an 18 per cent increase in profit to US$50 million. Analysts, including Jason Sum from DBS, have recently restarted coverage of the stock, setting a target price of S$1.75, citing the normalization of crude oil and jet fuel markets and continued regional arbitrage opportunities.
Sinopec, China’s largest oil and petrochemical firm, is also the country’s biggest supplier of oil and refined products. Its Singapore interests include petrochemical trading, marine bunkering, and retail fuel stations. CAO’s core business is in jet fuel supply and trading, where it is acknowledged as Asia-Pacific’s largest physical buyer and importer of jet fuel into China.
