<News Analysis> Positive Profit Alert

  • Net profit to nearly quadruple in FY21, broadly in line with market expectations
  • Strong performance across segments, benefiting from high oil prices and product demand recovery
  • Reiterate BUY; TP HK$4.40
  • Petrochina has outperformed Chinese peers last year; Prefer laggard – CNOOC as oil proxy

Petrochina issued a positive profit alert to guide for a  stellar FY21. Net profit is expected to almost quadruple, rising 374% to 395%, to Rmb 85-95bn, meeting the lower end of market consensus range. This will mark the best annual performance since 2014, which company generated Rmb107bn net profit on the back of c.US$100/bbl oil prices. 

E&P earnings was driven by oil price rebound of ~70% y-o-y to average US$71/bbl in 2021. Refining & Chemicals and Marketing segments also staged strong turnaround from losses in FY20 as demand recovering from COVID hit. In addition, Petrochina continued to optimized operating efficiency and enhance profitability. 

Looking into FY22, market expects earnings to dip slightly as Refining & Chemicals profitability moderates from high base in FY21. E&P segment should remain firm as oil prices continue to stay high. We forecast oil prices to average US$75-80/bbl in 2022 and US$85-90/bbl in 2023. 

Petrochina’s share price has risen over 50% last year on higher oil prices and better than expected earnings delivery that boosted confidence. Valuation remains undemanding at 0.5x PB and 7.7x PE against 7% ROE and 6-7% dividend yield. Though, we believe pure upstream proxy CNOOC offers better value at current level, trading attractively at only 0.6x PB and 4x PE despite more superior 15% ROE and 10% dividend yield.