- RE-ITERATE Buy Entry – 8.5 Target – 9.5 Stop Loss – 8.09
- Oil prices are about to reach US$100/bbl. Both Brent and WTI had surged to another new high since 2014, driven by the concerns over escalating tensions between Russia and Ukraine. Even though omicron infection cases are still rising, and some lockdowns in several countries remain, the demand for oil has not tapered substantially. The recent decision from OPEC+ to hike output by 400,000 bbls/d failed to bring prices down as the supply-demand gap is narrower than expected. More importantly, the underinvestment in exploration and production will leave limited room for further output hike. Accordingly, the market is projecting oil prices to reach US$100/bbl this year.
- We may not see inflation subside in the near term. The US, Europe, and China released their inflation data recently, showing that inflation pressure is still high. Oil and gas is a good hedge against inflation or stagflation amidst the rate hike cycle. The buoyant oil price will gradually pull some investments back in the sector given that clean energy investment is overheated at the moment.
- The updated market consensus of the EPS growth in FY22/23 is 42.2%/19.3% YoY respectively, which translates to 10.2x/8.6x forward PE. Current PER is 16.5x. Bloomberg consensus average 12-month target price is HK$9.73.