CNOOC (600938)
Event: on April 21, 2022, CNOOC (n CNOOC) was officially listed on a shares,
After the opening, n CNOOC’s share price instantly rose to 15.55 yuan, up 44%, reaching the limit on the first day of listing and triggering the temporary stop mechanism. After 10 o’clock, n CNOOC resumed trading and opened the daily limit. As of the afternoon closing, n CNOOC rose 27.69%.
Core view:
1. The production capacity cycle has triggered great energy inflation, and we continue to be optimistic about the historic allocation opportunities of energy resources such as crude oil. We believe that whether it is traditional oil and gas resources or American shale oil, capital expenditure is the main reason for limiting crude oil production. Considering that the global capital expenditure on crude oil is insufficient for a long time, the elasticity of global crude oil supply will decline. In the transformation of old and new energy sources, the demand for crude oil is still growing, and the world will face the problem of crude oil shortage for many years. The international oil price will usher in an upward turning point in 2022. In the medium and long term, the oil price will remain high for a long time, and the energy resources are expected to be in an upward cycle in the next 3-5 years. We will continue to be firmly optimistic about this round of energy inflation, Continue to be firmly optimistic about the historic allocation opportunities of energy resources such as crude oil under the capacity cycle.
2. The core of CNOOC’s investment value lies in its low-cost advantage. Low cost is the core competitiveness of oil companies, and also the key to improving profits and combating the risk of oil price fluctuations, so that the company still has the ability to make sustainable profits at the low and medium oil price level. Under the low and medium oil price level from 2016 to 2020, the company continued to make countercyclical investment, expanded crude oil reserves and production scale, and achieved remarkable cost reduction and efficiency increase. In 2021, the international oil price continued to rise to more than $70, making the company’s barrel oil cost rise slightly to $29.49/barrel, but still maintaining a relatively high cost advantage. We believe that the global offshore oil service industry is still relatively surplus. Although the oil price rises, the increase of oil service operating expenses is limited. As the company continues to strengthen exploration and development, especially the production of deep-sea oil fields such as Guyana, the reserves and production scale will be further improved, the depreciation amortization cost is expected to remain low, and the company’s competitive advantage of low barrel oil cost will continue to be consolidated.
3. CNOOC maintained high capital expenditure and achieved output growth. Driven by China’s policy of increasing reserves and production and the “seven-year action plan” of CNOOC, CNOOC will maintain a steady increase in crude oil production. In 2021, the company’s oil and gas production was 573 million barrels of oil equivalent. By 2022, the company’s net oil and gas production target will be Shanghai Zhongyida Co.Ltd(600610) million barrels of oil equivalent, of which China accounts for about 69% and overseas accounts for about 31%. From 2023 to 2024, the company’s net oil and gas production will reach 640650 million barrels of oil equivalent and 680690 million barrels of oil equivalent respectively, of which China accounts for about 65%, overseas accounts for about 35%, and the proportion of overseas production will increase. In the next three years, the growth rate of the company’s net output is expected to be about 6-7%. By 2025, the company plans to achieve the daily output target of 2 million barrels of oil equivalent and the annual net output target of 730 million barrels of oil equivalent. The growth of oil and gas production will further expand the performance scale of the company. The capital expenditure in 2022 is planned to be RMB 90-100 billion. According to the production target for the next three years published by the company’s 2022 strategic outlook, we expect the growth rate of crude oil production in 20222024 to be 4.3%, 6.6% and 6.2% respectively.
Profit forecast analysis:
Profit forecast and corresponding PE and Pb: we expect the net profit attributable to the parent company from 2022 to 2024 to be 102197 billion yuan, 121167 billion yuan and 131863 billion yuan respectively, with year-on-year growth rates of 45.3%, 18.6% and 8.8% respectively, and EPS of 2.16, 2.56 and 2.79 yuan / share respectively. According to the closing price of A-Shares on April 21, 2022, the corresponding PE from 2022 to 2024 are 6.38, 5.38 and 4.94 times respectively, and Pb are 1.14, 1.01 and 0.90 times respectively. According to the closing price of H shares on April 21, 2022 of 10.88 HKD (8.89 yuan), the corresponding PE of H shares from 2022 to 2024 are 4.11, 3.47 and 3.19 times respectively, and Pb are 0.74, 0.65 and 0.58 times respectively.
Valuation analysis:
Absolute valuation method, scenario 1: assuming that the average oil distribution price in 20222025 is $80 / barrel, the average net profit of the company in 2022 is 80 billion yuan, and the performance of the company in 20232025 has a growth rate of 7% caused by the increase of output; From 2026 to 2060, assuming that the average price of oil distribution is 60 US dollars / barrel, the average net profit of the company is 60 billion yuan. Under the assumption of 5-8% discount rate, the total value of the company is 806.2-1121.8 billion yuan. According to the closing prices of a and h on April 21, 2022, the total market value of the company is 432.8 billion yuan, with 86-159% growth space.
Absolute valuation method, scenario 2: assuming that the average oil distribution price in 20222025 is $100 / barrel, the average net profit of the company in 2022 is $100billion, and the performance of the company in 20232025 has a 7% growth rate caused by the growth of production; From 2026 to 2060, it is conservatively assumed that the average oil distribution price is 60 US dollars / barrel, and the average net profit of the company is 60 billion yuan. Under the assumption of 5-8% discount rate, the total value of the company is between 879.2-1200.2 billion yuan. According to the closing prices of a and h on April 21, 2022, the total market value of the company is 432.8 billion yuan, with 103177% growth space.
Absolute valuation method, scenario 3: assuming that the average price of oil distribution in 20222025 is 100 US dollars / barrel, the average net profit of the company in 2022 is 100 billion yuan, and the performance of the company in 20232025 has a growth rate of 7% caused by the increase of output; From 2026 to 2060, it is conservatively assumed that the average oil distribution price is 30 US dollars / barrel, and the average net profit of the company is 0 billion yuan. Under the assumption of 5-8% discount rate, the total value of the company is between 365.3-392 billion yuan. According to the closing prices of a and h on April 21, 2022, the total market value of the company is 432.8 billion yuan, and the downward space of the company is 9-16%, with sufficient safety cushion.
Relative valuation method, PE and Pb: according to the closing price on April 21, 2022, the corresponding PE of CNOOC A shares from 2022 to 2024 are 6.38, 5.38 and 4.94 times respectively, and Pb are 1.14, 1.01 and 0.90 times respectively. From 2022 to 2024, the PE valuation of CNOOC A shares was lower than that of PetroChina and Sinopec A shares, and also lower than that of international peers. For H shares, horizontally, from 2022 to 2024, the PE valuation of CNOOC H shares was between 3-4 times, but the PE valuation of the other two barrels of oil H shares was between 5-6 times, and CNOOC H shares were underestimated. Vertically, the PE range of CNOOC H shares from 2011 to 2021 is 9-12 times and the Pb range is 1-1.8 times. There is still room for a significant upward valuation of CNOOC H shares. According to the closing price on April 21, 2022, the A / H share premium of PetroChina and Sinopec is 60% and 30%, and the A / H share premium of CNOOC is 55%, which is between the two. Considering the significantly undervalued H-share valuation and the premium range of similar levels, CNOOC’s A-share valuation still has room to repair upward.
Dividend yield sensitivity analysis:
In the strategic outlook for 2022, the company said that the annual dividend payment rate from 2022 to 2024 should not be less than 40%, and the absolute value should not be less than HK $0.70 per share (including tax). According to the closing price of A-Shares on April 21, 2022, HK $0.7 per share is equivalent to a dividend yield of 4.7%; According to our profit forecast, the net profit in 2022 is 102.2 billion yuan, so the dividend per share is 0.87 yuan, which is equivalent to the dividend rate of 6.3%; In the oil price fluctuation range of $80-120 / barrel, the dividend yield range of CNOOC A shares is 5.35-7.44%, which is at a high level among its peers at home and abroad. According to the closing price of H shares on February 21, 2024, the dividend rate is equivalent to HK $0.21%; According to our profit forecast, the net profit in 2022 will be 102.2 billion yuan, so the dividend per share will be 0.87 yuan, equivalent to 10% of the dividend rate, a record high; In the oil price fluctuation range of $80-120 / barrel, the dividend yield range of CNOOC H shares is 8.37-12.38%, which is in the leading level among its peers at home and abroad. The company’s high dividend commitment guarantees absolute income.
Risk factors: repeated epidemic, economic fluctuation and downward risk of oil price; The company’s speed of increasing reserves and production is lower than the expected risk; Economic sanctions and geopolitical risks.
