<Results Analysis> FY21 record profit; Positive update on A-share listing
FY21 net profit would have been ahead of consensus estimate if not for asset impairment
A-share listing approved by China Securities Regulatory Commission (CSRC)
Final dividend and 20th Anniversary special dividend to be held back till completion of the A-share listing
Stock remains undervalued due to US sanction; Reiterate BUY
FY21 record profit broadly in line. CNOOC’s FY21 net profit almost tripled to Rmb70.3bn, a record high since 2011. Bottomline would have exceeded expectations if not for significant impairment of Rmb7.9bn in 2H, largely on North American assets. The strong earnings was driven by over 60% surge in oil prices and 8.5% production growth.
We recently raised our average oil price forecasts to US$95-100/bbl this year, representing 36-43% increase from 2021 level. We have therefore lifted our FY22/23F earnings by 22/5% to reflect the higher oil price assumption of US$90/bbl and US$85/bbl respectively.
All-in costs inched up 12%. All-in costs per boe in USD terms was up 11.9% y-o-y in 2021 to US$29.49/boe (vs US$26.34/boe in 2020). The cost increase was largely driven by higher DD&A of US$15.33/boe (vs US$14.11/boe in 2020) and opex of US$7.83/boe (from US$6.90/boe). While CNOOC reports its all-in-cost in USD for ease of comparison with global peers, nearly two-thirds of its volume is produced domestically, where cost is primarily Rmb-denominated. Management is confident to keep costs under control and stay cost competitive against peers.
Capex targets. CNOOC spent Rmb88.7bn capex in 2021, falling short of its guidance of Rmb90-100bn. Management maintains this capex range for 2022 and expects to spend c.Rmb100bn capex pa in the coming years to achieve product growth target of 5-6% pa. Domestic capex as a proportion of total capex has risen from typically 50% to ~60% in 2020 and 72% in 2021.
Upcoming A-share listing is a key catalyst.CNOOC’s share price has underperformed oil prices and peers, no thanks to US sanctions since Jan-2021. We anticipate the upcoming A-share listing to re-rate CNOOC’s valuation, which could complete the next 1-2 month after the receipt of CSRC’s approval on 30-Mar.
Delaying final and special dividend till completion of A-share listing. CNOOC had guided during the strategy preview that it would pay a special dividend for FY21 in conjunction with company’s 20th anniversary of listing. CNOOC paid HK$0.30 interim dividend for 1H21, and we expect a final dividend of HK$0.49 and a special dividend of HK0.06, bringing full year dividend to HK$0.85, or c.8% yield. The planned final and special dividend will be postponed till after completion of A-share listing to expedite the listing process.
Management has assured investors that company remains committed to pay out at least 40% of profits as dividend and absolute dividend would not be less than HK$0.70 (c. 8% yield) for the next 3-years. Assuming 40% payout, we project DPS to be HK$0.97-1.03 in FY22-23, implying ~9% dividend yield. We believe the dividend payout is sustainable as projected OCF of >Rmb130bn is sufficient to fund capex and dividends.
In addition, in view of the undervaluation of CNOOC, the company intends to activate its buyback mandate for 2022.
Positive catalysts in place – Elevated oil prices, A-share listing, share buyback exercise, and Special dividend. After near tripling of FY21 earnings, CNOOC’s earnings is expected to grow by a further 22% in FY22. The A-share listing plan is progressing well with the receipt of China Securities Regulatory Commission (CSRC) at end-Mar. Investors can look forward to FY21 final dividend and special dividend that have been delayed to after the completion of the A-share listing. Share buyback exercise should also lend support to share price.
| Key P&L and operating statistics: | |||||||||||
| 1H20 | 2H20 | 1H21 | 2H21 | YoY | HoH | FY20 | FY21 | YoY | |||
| Profit & Loss | |||||||||||
| Revenue | 74,560 | 80,812 | 110,233 | 135,878 | 68% | 23% | 155,372 | 246,111 | 58% | ||
| Operating Profit | 15,579 | 20,810 | 45,449 | 50,530 | 143% | 11% | 36,389 | 95,979 | 164% | ||
| Operating margin % | 21% | 26% | 41% | 37% | 23% | 39% | 67% | ||||
| Net Profit | 10,383 | 14,573 | 33,326 | 36,981 | 154% | 11% | 24,956 | 70,320 | 182% | ||
| Net margin % | 14% | 18% | 30% | 27% | 16% | 29% | 78% | ||||
| Production (mmboe) | 258 | 267 | 278 | 278 | 4% | 0% | 524 | 545 | 4% | ||
| Realised Oil Price (US$/bbl) | 39 | 43.20 | 62.38 | 62.38 | 44% | 0% | 40.96 | 67.89 | 66% | ||
| All-in-cost (US$/boe) | 25.72 | 26.96 | 28.98 | 28.98 | 7% | 0% | 26.34 | 29.49 | 12% | ||
| Source: Company, DBS Bank | |||||||||||