<News Analysis> CNOOC – 2022 Strategy Preview: Dividend Surprise; too cheap to ignore

  • FY21E production grew 8%, beating earlier growth guidance of 4%; guides for 6-7% growth through 2025
  • Positive surprises – special dividend for FY21; committed to at least HK$0.70/share or 40% payout ratio in the next 3 years; initiating share buyback
  • Upcoming A-share listing lends further support to share price
  • Reiterate BUY; TP HK$15.00; lucrative dividend yield of 10%

CNOOC announces its 2022 Strategy Preview last night.

Production and capex guidance for 2022 were broadly in line. Output grew 8% yoy in 2021 vs initial guidance of 4%. Output is expected to grow about 6% in 2022 while capex guidance is similar to 2021 at around Rmb90-100bn.

Major positive surprises were the dividend guidance and share buyback mandate.

CNOOC guided special dividend for FY2021 to be announced with full year results in Mar. In addition, it commits to pay at least 40% of profits and not less than HK$0.70 absolute DPS for next 3-years. HK$0.70 imply 8% yield. Assuming 40% payout on our earnings forecasts next two years, CNOOC could pay even higher DPS of HK0.85-0.90 implying at least 10% yield. We believe the dividend payout is sustainable as projected OCF of >Rmb130bn is sufficient to fund capex and dividends.  

Management has also proposed to activate share buyback this year.

Proposed A-share listing, potentially in Mar/Apr is another potential catalyst.

Share price is poised to re-rate. Amongst the best oil proxies, CNOOC is trading at undemanding valuation of 0.7x PB and 4xPE, against superior 15-16% ROE and 10-11% yield, underperforming oil px and peers, as stock trading  was affected by US sanctions. Otherwise, fundamental is solid. Reiterate BUY and $15 HK$ TP.