Company Reports

CNOOC's first-half 2024 net profit of CNY 79.7 billion, up 25% year on year, exceeded our expectation, but we see weaker second-half earnings due to sequentially lower oil prices. After updating our latest energy price and foreign exchange assumptions, we raise our fair value estimate to HKD 22.50 per H-share (CNY 20.70 per A-share) from HKD 19.70 (CNY 18.10). While we cut 2024-25 earnings forecasts by 4%-6% to account for lower oil prices, our midcycle net profit is increased by 18% because of lower cost assumptions. CNOOC’s all-in cost was down 1.5% year on year to USD 27.75 per barrel on the back of lower operating expenses, underlying its upstream cost leadership among peers, PetroChina and Sinopec. We think CNOOC’s H-shares are fairly valued, but its attractive 2024 dividend yield of more than 6% and ongoing share buybacks should provide support to share price.

CNOOC is the upstream arm of China's third state-owned oil company, China National Offshore Oil. As a result, it's the most direct option for investors seeking exposure to China's energy security policy and long-term plans to increase its oil supply. As it does not have downstream activities, the company has also avoided a large legacy labor force. None of the company's sales are subject to government price controls.

CNOOC is the upstream arm of China's third state-owned oil company, China National Offshore Oil. As a result, it's the most direct option for investors seeking exposure to China's energy security policy and long-term plans to increase its oil supply. As it does not have downstream activities, the company has also avoided a large legacy labor force. None of the company's sales are subject to government price controls.

CNOOC's first-quarter 2024 net profit beats our expectation, rising 24% year on year to CNY 39.7 billion, a record high. After incorporating our latest energy price assumptions and finetuning our production forecasts, we raise 2024-26 earning estimates by an average of 6%. Consequently, we increase our fair value estimate to HKD 19.70 per H-share (CNY 18.10 per A-share) from HKD 19.00 (CNY 17.50). At current prices, we think CNOOC's H-shares are fairly valued, although its near-term share price performance should continue to be supported by investors' preference for safe-haven assets. That said, on the supply side, Saudi Arabia and OPEC+ have about 5 million barrels per day of supply—if not more—that can be returned to the market if oil prices were to overheat and spike well above USD 100 per barrel. We expect there to be more downside risks than upside now to oil prices. Our long-term Brent oil price forecast of USD 60 per barrel remains unchanged.

CNOOC’s 2023 net profit of CNY 123.8 billion, down 13% year on year, was slightly below our expectation mainly due to impairments of CNY 3.5 billion. Operations-wise, the key statistics are in line with guidance provided in January 2024. We raise our fair value estimate to HKD 19.00 per H-share (CNY 17.50 per A-share) from HKD 17.50 (CNY 16.60) after incorporating our latest energy price and foreign exchange assumptions. While we think CNOOC's H-shares are now fairly valued, we believe investors may still prefer to hold companies with direct upstream exposure. The 2023 payout ratio of 44% is in line with our expectation and we keep our payout assumption at 45%. We think forecast 2024 dividend yield of more than 7% for H-shares remains attractive for investors, and shareholder returns will remain a priority for CNOOC.

CNOOC is the upstream arm of China's third state-owned oil company, China National Offshore Oil. As a result, it's the most direct option for investors seeking exposure to China's energy security policy and long-term plans to increase its oil supply. As it does not have downstream activities, the company has also avoided a large legacy labor force. None of the company's sales are subject to government price controls.

H-shares of the Big Three Chinese oil and gas players outperformed the Hang Seng Index year to date. We maintain our fair value estimates for CNOOC (HKD 18.00 per H-share, CNY 16.60 per A-share); PetroChina (HKD 6.50 per H-share, CNY 6.10 per A-share); and Sinopec (HKD 5.60 per H-share, CNY 5.10 per A-share). Following the recent run-up, we think H-shares of CNOOC and PetroChina are now fairly valued, but we believe Sinopec's H-shares are still undervalued, trading at close to a 20% discount to our fair value estimate. That said, given concerns about China's slowing economy and the demand on downstream refining products, we think investors may still prefer to hold companies with direct or larger upstream exposures, such as CNOOC and PetroChina.

We maintain our fair value estimates for CNOOC at HKD 18.00 per H-share (CNY 16.60 per A-share). Despite the recent share price run-up, we think CNOOC and its peers are undervalued. The possibility of the Chinese government introducing what appear to be capital allocation goals, which include dividend payouts and share buybacks, in the performance appraisal of executives at listed state-owned enterprises should also provide share price support to the Big Three Chinese oil and gas players, in our view. With uncertainty in near-term oil prices, we still prefer CNOOC over PetroChina and Sinopec given its cost efficiency—we expect average all-in cost at around USD 30 per barrel in our explicit five-year forecast periods—and oil and gas output growth. We believe CNOOC’s 2024 strategy preview, which guided for robust output targets for 2024-26, implies that energy security remains a key concern for China and the government will continue to focus on production growth in the sector.

CNOOC is the upstream arm of China's third state-owned oil company, China National Offshore Oil. As a result, it's the most direct option for investors seeking exposure to China's energy security policy and long-term plans to increase its oil supply. As it does not have downstream activities, the company has also avoided a large legacy labor force. None of the company's sales are subject to government price controls.

CNOOC is the upstream arm of China's third state-owned oil company, China National Offshore Oil. As a result, it's the most direct option for investors seeking exposure to China's energy security policy and long-term plans to increase its oil supply. As it does not have downstream activities, the company has also avoided a large legacy labor force. None of the company's sales are subject to government price controls.

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.

Despite weaker oil prices, CNOOC's first-half 2023 net profit of CNY 63.8 billion, down 11% year on year, was largely in line with the Refinitiv consensus. However, the results beat our expectations mainly due to lower-than-expected special oil gain levy and exploration expenses. After incorporating the latest results and updating our latest energy price and foreign exchange assumptions, we raise our 2023-25 earnings estimates by 22%-47%. Consequently, our fair value estimates are increased to HKD 18.00 per H-share (CNY 16.60 per A-share) from HKD 17.50 (CNY 15.30). Our long-term Brent forecast of USD 60 per barrel remains intact. We think CNOOC’s H-shares are currently undervalued, and the firm remains our top pick in the sector, given its cost efficiency and robust production growth.

CNOOC is the upstream arm of China's third state-owned oil company, China National Offshore Oil. As a result, it's the most direct option for investors seeking exposure to China's energy security policy and long-term plans to increase its oil supply. As it does not have downstream activities, the company has also avoided a large legacy labor force. None of the company's sales are subject to government price controls.

CNOOC is the upstream arm of China's third state-owned oil company, China National Offshore Oil. As a result, it's the most direct option for investors seeking exposure to China's energy security policy and long-term plans to increase its oil supply. As it does not have downstream activities, the company has also avoided a large legacy labor force. None of the company's sales are subject to government price controls.

CNOOC's first-quarter 2023 net profit was above our expectation, down only 6% year on year to CNY 32.1 billion, despite weaker oil prices. We keep our fair value estimate at HKD 17.50 per H-share (CNY 15.30 per A-share) after incorporating our latest energy price and foreign exchange assumptions. CNOOC remains our top pick in the sector, and we believe the H-shares are undervalued, given its cost efficiency and oil and gas output growth. We think the company is on track to achieve its output target of 2 million barrels of oil equivalent per day by 2025, supported by new projects coming on stream and new discoveries in China and overseas.

CNOOC is the upstream arm of China's third state-owned oil company, China National Offshore Oil. As a result, it's the most direct option for investors seeking exposure to China's energy security policy and long-term plans to increase its oil supply. As it does not have downstream activities, the company has also avoided a large legacy labor force. None of the company's sales are subject to government price controls.

CNOOC’s 2022 net profit of CNY 141.7 billion, double 2021 earnings, was in line with guidance. The robust results were backed by higher sales volume and strong oil and gas prices. We keep our fair value estimate at HKD 17.50 per H-share (CNY 15.30 per A-share) after incorporating our latest energy price and foreign exchange assumptions. CNOOC remains our top pick in the sector given its cost efficiency and oil and gas output growth. Although the payout ratio of 43% for 2022 appears low versus more than 80% in 2021 (due to a special dividend), we think forecast 2023 dividend yield of more than 8% for H-shares remains attractive for investors. We believe management is leaving some headroom considering the lower oil prices and heavy capital expenditure, but shareholder returns will remain a priority for CNOOC.

We maintain our fair value estimates for: CNOOC (HKD 17.50 per H-share, CNY 15.30 per A-share); PetroChina (HKD 4.92 per H-share, CNY 4.28 per A-share); and Sinopec (HKD 5.50 per H-share, CNY 4.76 per A-share). Both CNOOC and PetroChina guided strong preliminary 2022 net profit that beat market expectations. Meanwhile, although Sinopec has yet to provide preliminary 2022 net profit, we note that the firm’s 2022 operating statistics are largely in line with our expectations. We will provide more updates pending the announcements of their final results in March.

CNOOC is the upstream arm of China's third state-owned oil company, China National Offshore Oil. As a result, it's the most direct option for investors seeking exposure to China's energy security policy and long-term plans to increase its oil supply. As it does not have downstream activities, the company has also avoided a large legacy labor force. None of the company's sales are subject to government price controls.

We keep CNOOC’s fair value estimate at HKD 17.50 per H-share (CNY 15.30 per A-share). We think CNOOC’s H-shares are currently undervalued, and the firm remains our top pick in the sector given its cost efficiency and robust production growth. We note oil producers may not be in favor with the market given relative outperformance over the past two years and with the prospect of falling oil prices to slow the earnings outlook. However, our fair value estimate factors in a long-term Brent crude price of USD 60 per barrel which we believe reflects market equilibrium demand-supply for oil. In addition, CNOOC’s dividend yield remains attractive given that annual absolute dividend will be at least HKD 0.70 per share for 2023-24, implying annual yield of at least 6.9% based on closing price as of Jan. 11.