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"Investment Overview
Prime proxy of oil price and China’s reopening. Largest integrated oil major that leads the energy transformation in China. PetroChina is instrumental in driving the carbon neutrality policy in China. Natural gas, the transitional cleaner fossil fuel, accounts for c.50% of its production. With the aim to have oil, gas, and green energies each account for a third of its portfolio by 2035, PetroChina also has various clean energy initiatives in place including a growing renewables portfolio, building hydrogen refuelling stations, and R&D into carbon capture and storage.
Earnings and cash flow to stay at elevated levels; support attractive dividend yield of >8%. We expect FY23 net profit to moderate c.17% from record-high profits in FY22, in anticipation of an oil price decline from US$100/bbl to US$85-90/bbl. Nevertheless, net profits are expected to stay at elevated levels above Rmb100bn p.a., supporting capex and dividend payout. At a 45% payout ratio, PetroChina could pay HK$0.30-0.35 DPS, translating to an attractive dividend yield of >8% for the next two years.
China’s reopening and oil price are key catalysts. Chinese oil majors’ share prices have underperformed global and regional peers last year due largely to the zero-COVID policy. Following the reopening of China, the big three rerated c.15% in January, and we believe the rally has legs. With a 0.8x correlation to the oil price, its share price could also react positively as the oil price inches up towards US$90/bbl.
Reiterate BUY; TP HK$5. Our SOTP-based TP is HK$5, and the E&P segment represents about half of the total equity value. Natural gas & pipeline, refining & chemicals, and marketing account for the remaining 24%, 9%, and 13%, respectively.
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