Is China Aviation Oil (Singapore) (SGX:G92) a Compelling Long-Term Buy at Its Current Valuation?

In the evolving landscape of global energy markets, investors seeking long-term value must balance growth potential, valuation discipline, and governance integrity. China Aviation Oil (Singapore) Corporation Ltd (SGX:G92) presents a nuanced case, offering a mix of robust financial performance, strategic positioning in emerging sectors, and governance dynamics that warrant careful scrutiny. This analysis evaluates whether the company's current valuation justifies a long-term investment thesis, focusing on sustainable earnings growth, valuation metrics, and corporate governance.

Sustainable Earnings Growth: A Mixed Picture

China Aviation Oil (Singapore) has demonstrated resilience in its financial performance. For FY 2024, the company reported revenue of $15.5 billion, a 7.5% increase year-over-year, and net income of $78.4 million, up 33% from FY 2023. Earnings per share (EPS) rose to $0.091, reflecting a compound annual growth rate of 25% over the past three years. These figures underscore the company's ability to capitalize on favorable market conditions, particularly the normalization of crude oil and jet fuel market structures, which DBS analysts note could further enhance trading profitability.

However, forward-looking projections temper this optimism. While the company is forecasted to grow revenue by 6.2% annually over the next two years, its earnings growth is expected to decelerate to 8.2% annually over the subsequent three years, lagging behind the broader market's projected 12% growth. This divergence raises questions about the sustainability of its current momentum, particularly as global energy markets face structural shifts, including the transition to cleaner fuels.

A critical differentiator lies in the company's early strategic positioning in sustainable aviation fuel (SAF). DBS analysts highlight this as a "compelling medium-term growth optionality", given the rising regulatory and consumer demand for low-carbon energy solutions. If CAO can scale its SAF initiatives effectively, it may offset slower growth in traditional segments. Yet, the success of this strategy hinges on execution, technological advancements, and regulatory tailwinds-factors that remain uncertain.

Valuation Metrics: A Discounted Opportunity?

At first glance, CAO's valuation appears attractive. Its trailing P/E ratio of 10.30 and forward P/E of 9.46 are significantly lower than the sector's average P/E of 17.0x in 2025. This discount suggests that the market may be pricing in caution about the company's growth prospects or its exposure to cyclical energy markets. However, such a low valuation could also represent an undervaluation if CAO's strategic initiatives in SAF and its operational efficiency gains materialize.

The company's dividend performance and total shareholder return (TSR) further bolster its appeal. Over the past three years, CAO has delivered strong shareholder returns, outperforming the market. A forward-looking investor might view this as a sign of management's commitment to capital allocation discipline, even as earnings growth moderates.

That said, the valuation discount is not without risks. The company's current liabilities to total assets ratio stands at 53%, indicating a heavy reliance on short-term debt. While this may reflect operational flexibility in a volatile sector, it also exposes CAO to liquidity risks if interest rates or commodity prices shift abruptly.

Governance Factors: Strengths and Vulnerabilities

Corporate governance is a cornerstone of long-term investment viability, and CAO's governance framework presents both strengths and areas of concern. The company has a well-structured board with specialized committees-Audit, Nominating, Remuneration, Risk Management, and Sustainability-designed to ensure robust oversight. Its recent recognition with the SIAS "Singapore Corporate Sustainability Award" and The Edge's "Highest Growth in Profit after Tax" award underscores its commitment to sustainability and financial performance.

However, recent governance-related changes introduce uncertainty. In November 2025, CAO announced a change in its company secretary and a restructuring of its controlling shareholder. While such transitions are not inherently problematic, they could signal shifts in strategic direction or internal dynamics that may affect operational continuity. Investors must monitor how these changes influence management's focus on long-term value creation.

On the ESG front, CAO's risk management infrastructure is commendable. A four-tier system-encompassing the Board, Risk Management Committee, Risk Management Department, and operational teams-ensures rigorous oversight of market, credit, and reputational risks. Its sustainability initiatives, including responsible procurement and workforce engagement, align with global ESG trends. Yet, the absence of a publicly available S&P Global ESG Score limits transparency, making it difficult to benchmark CAO's ESG performance against peers.

Conclusion: A Calculated Bet for Patient Investors

China Aviation Oil (Singapore) occupies a unique position in the energy transition. Its low valuation, strong historical earnings growth, and early bets on sustainable aviation fuel create a compelling case for long-term investors who are willing to navigate near-term uncertainties. The company's governance structure and ESG strategies further reinforce its credibility, though recent leadership changes and high leverage warrant caution.

For CAO to justify its current valuation as a "compelling buy," it must demonstrate that its strategic initiatives in SAF can scale profitably and that its governance framework can adapt to evolving challenges. If these conditions are met, the company's discounted valuation could offer a margin of safety for investors with a multi-year horizon. Conversely, if execution falters or market dynamics shift unfavorably, the low P/E ratio may reflect justified skepticism.

In a world where energy markets are in flux, CAO represents a calculated bet-one that rewards patience, diversification, and a nuanced understanding of both risks and opportunities.