KGI: CNOOC Limited (883 HK) – Oil’s bull run halts but does not end
alanyeo
007
BUY Entry – 9.0 Target – 10.0 Stop Loss – 8.5
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.
Not easy to fill the supply gap. Oil prices have corrected from the highs of US$130+/bbl due to the recent China’s surge in COVID cases, wiping out most of the gains driven by the Russian invasion. However, the crude oil market needs to source 4mn bbls/d of supply which was approximately Russia’s export before the sanctions, from other countries to substitute the Russian oil. Iran and Venezuela are the probable alternatives. But it will take several quarters to ramp up production and reschedule the route of shipping. China is expected to contain the spread in a short period of time given the draconian lockdown measures. Therefore, the demand recovery will outpace the ramp-up in supply. Oil prices will remain at above US$100/bbl in the near term.
Warren buffet bought more oil. Berkshire Hathaway (BRK.A US) continued to add to its large stake in Occidental Petroleum (OXY US) in recent days and now holds a $7.2 billion interest in the big energy company, according to a filing late Wednesday.
Upbeat announcement. The company announced the production target in 2022 and the dividend plan. The company proposes that the dividend payout ratio will be no less than 40% from 2022 to 2024. The annual absolute dividend is expected to be no less than HK$0.70/share regardless of the operational results. Meanwhile, the company plans to pay a 20th anniversary special dividend in addition to the 2021 year-end regular dividend. In 2022, the company will appropriately implement the share buybacks subject to the authorization granted at the general meeting of shareholders.
The updated market consensus of the EPS growth in FY22/23 is 23.7%/-1.30% YoY respectively, which translates to 3.8x/3.9x forward PE. Current PER is 7.2x. FY22F/23F dividend yield is 10.75%/10.4%. Bloomberg consensus average 12-month target price is HK$13.32.
