Key takeaways
We went on a gas trip in Beijing meeting with China's policy makers inthe natural gas space. With government priority shifted to guaranteethe gas supply, an unprecedented level of gas pricing power is beingawarded to PetroChina during this heating season. Besides, weexpect more catalysts such as a subsidy for tight gas and cushion gasin storage reserve to come through in the next few months.
Winter gas price on track to be raised over 25% this time. Heftynon-residential gas price hikes were recently announced in variousprovinces and cities, such as a 30% hike in Zhejiang Province, 18% inSuzhou City, etc. We believe with government focus being shifted toguarantee the gas supply now, PetroChina is being given anunprecedented level of gas pricing power during this winter. Wemaintain our base case forecast of an over 25% overall gas price hikeon city gate benchmark for PetroChina over the heating season.
We expect a Rmb0.2/cm tight gas subsidy for PetroChina, on theback of government plan to boost domestic gas output to 200bcm by2020. With today's around 40bcm tight gas output, the subsidy isexpected to add Rmb8.0bn operating profits for PetroChina’supstream segment.
Potential subsidy for cushion gas in the gas storage. Besides, thesubsidy on gas storage is expected to be rolled out soon, and webelieve a likely subsidy on the cushion gas from government willfinancially benefit PetroChina as well and incentivize PetroChina toramp up its gas storage business mainly for peak shaving.
National pipeline company could be formed around Jun 19. Weestimate the heating season could delay the official establishment ofthe national pipeline company to June 19. The details and structureof the pipeline company should already be ready for announcement.
An early announcement should be a positive for PetroChina as itremoves the long-time overhang on the stock.
Recommendation
Maintain BUY on Petrochina with TP of HK$7.9 based on SOTPvaluation, implying 33% upside. The stock is trading at 15x/13x2018e/19e P/E.
Risks
Oil price volatility; winter gas price hike.