The net profit of CNOOC Limited grew 7% QoQ in 3Q23, largely in line with our forecast. The growth was mainly driven by the 14% QoQ rise in realised oil price and continued good cost control. The company is confident of meeting the high-end of its full-year output guidance in view of the strong performance in 9M23. It also raises its full-year capex budget by about 20%. Although we trim our 2023-25 earnings forecasts by 1-2%, we reiterate our BUY call with target price lowered to HK$16.57 in view of its low valuations and attractive dividend yield.
　　Key Factors for Rating
　　The company’s net profit grew 7% QoQ but dropped 8% YoY to RMB33.9bn in 3Q23, 4% below our guidance. The discrepancy mainly came from lower-than- expected realised gas price and higher-than-expected cost.
　　Its total oil and gas output grew 7% YoY to 167.8m BOE in 3Q23. The total output in 9M23 grew 8% YoY to 499.7m BOE. As the total output in 9M23 already reached 75.7-76.9% of its full-year guidance, the company is confident that it can reach the high-end of its full-year guidance in terms of output.
　　The company continued to show good cost control, with unit opex and all-in cost down 7% YoY and 6% YoY respectively in 9M23. While the unit opex and all-in cost increased 4% QoQ and 2% QoQ respectively in 3Q23, the latter was mainly due to the increase in other taxes arising from higher oil price.
　　The company capex surged 30% YoY to RMB89.5bn in 9M23. As it accelerates the construction of its new capacity and speeds up the approval process of new projects, it increases its full-year capex budget by about 20%, from RMB100- 110bn to RMB120-130bn.
　　We trim our 2023-25 earnings forecasts after adjusting our model, mainly lowering realised oil price and increasing our output (for 2023 only) and all-in cost assumptions. Despite this, the company’s shares still look attractive at 4.3x 2023E P/E and offering 9.3-9.6% dividend yield for 2023-2025E.
　　Key Risks for Rating
　　Sharp fall in oil price.
　　Higher-than-expected cost.
　　Valuation
　　We trim our SOTP NAV from HK$19.32 to HK$19.01 following the small cuts in our earnings forecasts. Hence, we lower our target price from HK$16.88 to HK$16.57 as we still set our target price at the mean discount (widened from 12.6% to 12.8%) to our NAV since early 2016. This puts us at 5.3x 2023E P/E.