PetroChina once traded at significant premium to global peers （2010-2014）During the 5-year period of peak oil price conditions from 2010-2014, PetroChina's Hshare（PTR-H） valuation traded at a premium to our sample of 14 global integrated oilstocks on PE, EV/DACF and EV/EBITDA and mostly in line on PB, P-CEPS, and EV/CE.
　　However, during the 2015-2016 oil price down-cycle, PTR-H valuation flipped totrading at a large discount to its peers. We believe PTR-H relative share performancesuffered due to its high cost and low dividend during the down-cycle. We note thatwhile our sample of global integrated oil peer companies maintained dividend yieldsnear 4.3% during 2015-2016, PTR-H dividend yield slumped to average just 1 percent.
　　Rising dividends could drive relative outperformanceWhile PetroChina's H-share price has rallied recently, its discount to peers has remainedas wide as it was during the 2015-2016 down-cycle years. However, we believe PTR-His likely to see the valuation gap narrow and its share price continue to outperform itspeer group. We believe the prospect for potentially the strongest free cash flow onrecord, rapid dividend growth and de-leveraging balance sheet are potential share pricedrivers. Further asset disposal could accelerate the trend.
　　China's gas giant has 60% of reserves in natural gasAs highlighted in our Gas is back in China note, we believe investors were discouragedby developments in China's gas markets the last 2-3 years. Disappointing gas demandgrowth of 8-9% in 2014 was followed by just 2-3% demand growth in 2015.
　　Furthermore, concerns lingered amidst an apparent glut of large long-term LNG andpipeline import contracts. Now we believe China's upstream gas industry has troughed.
　　The process will be gradual, but we believe more market-oriented pricing, reform ofdownstream pipeline tariffs，direct governmentstimulus, and higher alternative fuel prices （diesel, LPG, fuel oil, coal） should graduallybenefit upstream gas price.
　　Valuation: Price target HK$7.9/sh
　　We use an NAV methodology （30% discount） to determine our price target （2P reservesat Brent US$70/bbl, 10% WACC） （downstream assets at 6-9x 17E EV/EBITDA）。