CNOOC’s 89% YoY surge in earnings is in line with its guidance. Its total oil and gas output is likely to reach the high-end of its full-year guidance. The company continued to see good results from its stringent cost control and positive exploration results with a recent huge gas discovery in South China Sea. We increase our 2022-24 earnings forecasts by 7-10% and reiterate our BUY call with target price slightly lowered to HK$13.49.
Key Factors for Rating
The company’s net profit surge 89% YoY to RMB36.9bn in 3Q22 under CAS on the 36% YoY gain in realised oil price. While its net profit slipped 2% QoQ, it is a strong performance considering the 13% QoQ fall in its realised oil price. n Its total oil and gas output grew 9% YoY and 2% QoQ in 3Q22 and the strong output growth helped to offset the impact of lower oil price. As its total oil and gas output (up 9% YoY to 461.5m BOE) in 9M22 already reached 75.7%-76.9% of its full-year output guidance, the company now expect its full-year output to reach or even exceed the high-end of its guidance (610m BOE). n In 9M22, its opex and all-in cost only edged up 3% YoY and 1% YoY respectively.
In which, unit DD&A expense fell 11% YoY on the changes in production mix and reserves upgrading. n The company made 14 discoveries in 9M22. In offshore China, it has recently discovered Baodao 21-1, a big gas field in South China Sea with certified proved reserves at 50bcm. It will increase the company gas reserve by 6% at 30% recovery rate. In offshore Guyana, its PSC partner has made seven new discoveries in the giant Stabroek Block in 9M22 and the recoverable resources of the block reaches 11bn BOE. CNOOC owns 25% of this block and its total oil gas reserves will increase by 50%+ if the reserves are fully booked. n The company’s shares look cheap at 3.1x 2022E P/E and 12.7% 2022E dividend yield. Its recent share buyback (bought and cancelled 45m Hong Kong shares in September) will support its share price.
Key Risks for Rating
Sharp fall in oil price. n Higher-than-expected cost.
Valuation
We lower our SOTP NAV from HK$15.19 to HK$15.02 owing to the recent depreciation of RMB against HK$. Hence, we lower our target price from HK$13.78 to HK$13.49 as we still set our target price at the mean (widened from 9.3% discount to 10.2% since late August) in terms of share price discount to our NAV since early 2016. This is equivalent to 4.2x 2022E P/E.