1H18 earnings in line with preannouncementPetroChina announced 1H18 earnings of Rmb27.1bn, up more thandouble YoY and in line with the preannouncement. For 2Q18,earnings rose 143% YoY and 67% QoQ to Rmb16.9bn.
PetroChina proposed a total interim dividend of Rmb16.3bn—exactly1/3 of 1H18 FCF—for a DPS of Rmb0.0888, implying a 60% payoutratio （including a 45% regular payout and 15% special dividend）。
Capex for 1H18 came to Rmb75bn, on track to meet the FY18 targetof Rmb233bn.
Effective tax rate jumped in 2Q18 to 39%, mainly due to newlycommissioned projects in highly taxed regions such as Abu Dhabi.
Gas import losses this year are likely to exceed the FY17 level. Theoperations posted a net loss of Rmb13.4bn for 1H18; we expect FY18losses of around Rmb28bn.
Trends to watch
Gas contractual volume for winter peak season expected to rise lessthan 10% YoY to 84bcm. With an increase in contracted volume likelyto be limited, we believe PetroChina will raise winter gas prices morethan the market expects, given that non-contractual volume shouldfetch the highest bidding price on the Shanghai Gas Exchange.
Managed gas production to grow 4% in FY18. Management expectsits domestic gas production to grow around 4.0% in FY18. We see thisas a managed process, as the company is not in a rush to ramp updomestic gas operations before pricing is reasonably liberalized.
Earnings forecast
We maintain our earnings forecasts and target price.
Valuation and recommendation
PetroChina-H is trading at 16x 2018e and 14x 2019e P/E. We maintainour HK$7.60 target price, based on a SOTP valuation and offering 25%upside. Maintain BUY.
Risks
Oil price volatility; pipeline reform