3Q18 earnings a solid beat
PetroChina 3Q18 net profits came in at Rmb21bn, up 349% YoY and24% QoQ, ahead of our Rmb20bn forecast. The beat is mainly frombetter than expected chemical earnings.
Trends to watch
Gas ASP the bright spot. Gas ASP at wellhead level edged up toRmb1.46/cm in 3Q18, up 5% QoQ in CNY terms, thanks to residentialgas price hike effective on June 18 and non-residential gas price hikekicking in on September 18 in certain provinces.
Very aggressive winter gas price hike ahead. PetroChina hasannounced its winter gas price hike scheme over the coming heatingseason （November 18 to March 19） – a 15% hike for the existingvolume of 79.7bcm, 37% for peak-shaving volume of 4.3bcm, andover 50% for out-of-contract volumes. Overall, we expect a roughly25% gas price increase over winter.
Full-year gas import loss could be flat or even narrow. The companymanaged to narrow its gas import losses to Rmb6.5bn in 3Q18, fromRmb7.6bn in 2Q18. On a full year basis, we expect the firm to achieveflattish gas import losses, or even narrow the losses.
Capex to overshoot in FY18. With LNG Canada and accelerating shalespending in 2H18, we expect its capex to overshoot to Rmb240bn inFY18, versus its guidance of Rmb233bn.
A 4.0% dividend yield should be maintained on solid FCF. That said,the ramping-up capex should not threaten the FCF and dividends. Weexpect the company to achieve a 4.0% dividend yield in FY18.
Earnings forecast
We lift our FY18e/19e NAPT 13%/14% to Rmb65bn/75bn.
Valuation and recommendation
We maintain BUY on PetroChina, which is our top pick in the sector.We raise our TP by 3.9% to HK$7.9 based on SOTP valuation, implying42% upside. The stock is trading at 12.7x/11.1x 2018/19e P/E.
Risks
Oil price; winter gas price hike