Progress in a backward market

China Aviation Oil (Singapore) Corporation (CAO) has made good progress in the first half of the year, benefiting from favourable volume growth offset to a degree by FX and the non-recurrence of positive stock valuation. Trading conditions look more challenging in the second half with the jet fuel market having moved into backwardation since early July. We are thus taking a much more cautious view on the second half and have reduced our forecasts accordingly. It is important to recognise that cash generation has been far stronger than expected and should remain favourable in H2 as inventory is released and the main associate dividend is received. Thus, our fair value actually increases to US$1.55 (S$2.11) per share from US$1.45 (S$2.04) as a result.