PetroChina (PTR) reported in-line 1H16 results on 24 August after market close
PTR reported 1H16 NP of RMB531m or RMB0.0029/share vs. ourRMB0.0004/share estimate. Stripping out the one-off RMB24.5bn gains fromthe disposal of its Trans-Asia Pipeline, recurring earnings was -195% yoy. PTRcontinues to stay committed to shareholder returns, paying out a specialinterim dividend of RMB0.02/share in addition to sticking with its dividendpayout ratio of 45%. Interim dividend of RMB0.0213 per share translated to ac.0.47% dividend yield. E&P was the only major division that was loss-makingin 1H, but the losses were lower than expected due to increased cost-cuttingmeasures by PTR, namely cutting all-in-cost by USD3.8/bbl.
Divisional results – E&P swapping fortunes with Refining & Chemicals
E&P turned from a RMB32.9bn OP a year ago to an 1H16 operating loss of-RMB2.4bn vs. DBe of -RMB28.7bn, and 1Q OP of -RMB20.3bn. The beat wasmainly due to a RMB24.5bn disposal gain on Trans-Asia Pipeline; excludingsuch one-off gains, E&P should post an operating loss of c.RMB27bn. Refiningand Chemicals’ 1H16 OP surged to RMB27.5bn vs. our RMB26.5bn estimate, asignificant improvement from only RMB4.7bn in 1H15. PTR’s marketingdivision posted OP of RMB4.6bn vs. DBe of RMB7.3bn and 1Q16 results ofRMB426m. We noted in our China O&G monthly that mark-up for gas stationshas now reached the highest point of the year. The Gas & Pipeline divisionsurprised positively with RMB11.4bn in OP vs. our RMB13.6bn estimate, aftera 25% drop in import loss to RMB8bn. We had previously expected aRMB3.5bn gain from Kunlun Gas asset integration, which has already beenpartly booked in 1H16. Meanwhile, RMB16.4bn of net profit was deemedattributable to minority interests, which was beyond our expectations.
Physical operating results
PTR reported six-month oil production growth of +1.7% yoy, which is wayahead of its -4.9% yoy target, achieving 51% of its full-year guidance. Overseasproduction was strong, up 13% yoy vs. -4.2% yoy domestically. Natural gasproduction grew +7.4% yoy, which is also much higher than its +1.3% yoytarget. Overseas production grew +31.4% yoy vs. +5.7% domestically. PTR didmention that it cannot control the overseas production in which it is not theoperator, so it will be interesting to see if PTR will revise up its full-year targetat the analyst briefing on 25 August. PTR’s 1H16 average sales price fornatural gas was RMB1,119/kcm, down 20% yoy, but its 2Q16 price ofRMB1,127/kcm is up 1.3% QoQ. Gas prices may have now bottomed for PTR.PTR’s six-month realized ASP on crude sold was USD33.1/bbl vs. USD41.1/bblBrent. The discount has narrowed in 2Q to only USD3.4/bbl.
Valuation and risks
We maintain our Buy rating on PTR as we expect oil prices to trend higher in2H16 and 2017. We derive our target price by applying SOTP, valuing E&Pwith DCF (WACC of 8.9%, terminal growth of 2%) and the downstreamsegments with P/B vs. ROE. Our target price implies 5.6x 2017E EV/DACF, 6%below the 10-year average of 5.9x. Risks: weak oil & gas prices andunexpected regulatory changes/reform.