CNOOC Limited is a Hong Kong-based investment holding company principally engaged in the exploration, production and trading of oil and gas. Its businesses include conventional oil and gas businesses, shale oil and gas businesses, oil sands businesses and other unconventional oil and gas businesses. The Company mainly operates businesses through three segments. The Exploration and Production segment is engaged in the exploration, development and production of crude oil, natural gas and other petroleum products. The Trading segment is engaged in the trading of crude oil, natural gas and other petroleum products. The Company mainly operates businesses in China, Canada, the United Kingdom, Nigeria, Indonesia and Brazil, among others.
The company has been underperforming the global oil majors due to the inclusion in the US blacklist of military-related enterprises. The company is out of favour with foreign investors. But we note that only 6% of its business is exposed to North America.
Recently, international oil prices (Brent and WTI) have climbed back to the highs of 3Q18. As of 16th June, Brent and WTI were trading above US$74/bbl and US$72/bbl respectively. Therefore, the oil and gas sector has been upbeat recently owing to the oil price tailwinds.
The stock has the highest oil beta (regression against Brent) among all oil majors. The market estimates of Brent range from US$55/bbl to US$73/bbl. And the respective median and mean are US$65.7/bbl and US$66/bbl. Based on the regression model and US$66/bbl Brent price, the implied stock price is HK$11.6.
Updated market consensus of the estimated growth of net profit in FY21 and FY22 are 167.0% and 6.8% respectively, which translates to 5.4x and 5.1x forward PE. The current PE is 13.2x. The estimated respective dividend yield in FY21 and FY22 is around 8.2% to 8.7%. Bloomberg consensus average 12-month target price is HK$12.29.