CNOOC Earnings: Higher Capital Expenditure to Drive Future Production Growth; Shares Undervalued

CNOOC's cumulative nine months 2023 net profit was down 10.2% year on year to CNY 97.6 billion, largely in line with the Refinitiv consensus. The impact of lower energy prices was partly offset by stronger output and stringent cost control. After incorporating our latest energy price and foreign exchange assumptions, we raise our 2024-25 earnings estimates by 6%-19%. Our fair value estimates of HKD 18.00 per H-share (CNY 16.60 per A-share) remain intact as our long-term Brent forecast of USD 60 per barrel is unchanged. We think CNOOC’s H-shares are currently undervalued, with estimated 2024 dividend yield of more than 10%, based on the Oct. 24 closing price. The firm remains our top pick in the sector, given its cost efficiency and robust production growth.