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PetroChina:Highly leveraged to further oil price recovery

发布时间:2016-07-07    研究机构:瑞银证券

Upgrading our global oil price forecasts.

Following our upgrade to UBS Brent crude oil price forecasts from US$42.4/bbl toUS$46.1/bbl (16E) and from US$55/bbl to US$60/bbl (17E), we are raising our pre-exEPS estimates for PetroChina from a loss of Rmb0.24/sh to loss of Rmb0.11/sh (16E)and from break-even in 2017E to EPS of Rmb0.18/sh. Following lower than expectednatural gas import costs year-to-date, we also lower our LNG import costs assumptionsthroughout our forecast period. We continue to assume Brent crude oil prices ofUS$70/bbl (18E) and US$75/bbl (19E). Volatility in oil prices and share prices isinevitable, but we continue to view risks skewed to the up-side over the next 1-3 years.

Natural gas risks to PetroChina have turned the corner.

We believe PetroChina underperformed in part in the last 12 months given uncertaintysurrounding the gas price cuts that transpired in Nov 2015, worse than expected gasdemand in China, exposure to expensive gas import contracts, and uncertainty relatedto the impact of SOE reform and asset restructuring. So far this year, China's gasdemand has surprised to the upside (see note May gas demand still above expectation)and gas import prices have been lower than expected. We think gas prices will bestable or up in the next 1-2 years given rising oil prices and NDRC policy that will allowsuppliers to raise city gate prices by up to 20% above the guidance prices by Nov.

City gas distribution margin cuts reduced risks to PetroChina.

We also believe the recent news of cuts to city gas distribution margins in Anhui andZhejiang province indicate reduced regulatory risk for PetroChina. We believe the cutssuggest regulators are more focused downstream, where margins are strong andtherefore vulnerable to cuts, and not upstream, where margins are either thin or lossmakingand therefore less vulnerable to scrutiny.

Valuation: Price target HK$7.7/sh (previous HK$7.4/sh).

We use an NAV methodology (30% discount) to determine our price target. We valuethe E&P segment using 2P reserves estimates (long-term Brent US$75/bbl, 10%WACC). We value downstream and gas assets at 6-9x EV/EBITDA.

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