20160127-招商证券_香港_-Industry_Report_China_Oil_and_Gas-More_pain_before_gain_28页_1mb

Investment Thesis Summary

Core Content

This document outlines the investment thesis and financial outlook for major Chinese oil and gas companies and related service providers in the context of a challenging oil price environment. It discusses earnings revisions, valuation adjustments, and potential recovery in the sector.

Main Points and Key Information

1. Oil Price Projections and Earnings Impact

• 2016E-17E Oil Price Cut: The oil price projection was cut by US$15-20/bbl to US$45/55/bbl, reflecting the impact of EIA's lower forecast and earlier-than-expected Iran oil supply.
• Long-term Oil Price Projection: The long-term oil price projection remains at US$75/bbl, indicating a belief in eventual recovery due to the need for higher prices to support new discoveries.
• Earnings Revisions: Earnings for 2015E-17E were significantly revised downward across all segments due to the oil price decline and other factors such as RMB depreciation and production cuts.

2. Company-Specific Analysis

PetroChina

• Earnings Projection Cut: Reduced by 61-85% for 2016E-17E.
• One-off Gain: A one-off gain of RMB28.5bn from the West East Gas Pipeline restructuring is expected to offset potential losses.
• TP Adjustment: Target price (TP) was lowered from HK$8.3 to HK$6.4.
• P/B Ratio: Trading at a depressed 2016E P/B of 0.6x, below the average of global land drillers.

CNOOC

• Earnings Projection Cut: Reduced by 13-98% for 2015E-17E.
• TP Adjustment: Target price (TP) was lowered from HK$10.8 to HK$8.9.
• Impact of RMB Depreciation: Positive for CNOOC, with a RMB130mn boost in NP for a 1% RMB depreciation.
• Production Cut: 7-9% cut in oil and gas production for 2016E/17E.

SSC

• Earnings Impact: Expected to report a moderate loss of RMB77mn in 2016E, down from RMB471mn previously.
• TP Adjustment: Target price (TP) was cut from HK$2.7 to HK$1.5.
• RMB Depreciation Impact: Negative impact, with a RMB40mn reduction in NP for a 1% depreciation.

COSL

• Earnings Impact: Expected to struggle for breakeven in 2016E after an 86% YoY net profit plunge in 2015E.
• TP Adjustment: Target price (TP) was cut from HK$8.7 to HK$4.5.
• RMB Depreciation Impact: Negative impact, with a RMB40mn reduction in NP for a 1% depreciation.
• P/B Ratio: Trading at 0.4x, significantly below historical averages.

3. RMB Depreciation Impact

• Positive for Oil Companies: RMB depreciation against USD boosts revenue for oil companies as it is reported in RMB, offsetting higher interest expenses.
• Negative for OFS (Oilfield Services): OFS companies face a negative impact due to high USD debt exposure.
• Estimates:
  • PetroChina: RMB1.0bn boost per 1% depreciation.
  • CNOOC: RMB130mn boost per 1% depreciation.
  • SSC and COSL: RMB40mn reduction per 1% depreciation.

4. Valuation Models and Adjustments

• DCF-based TP for CNOOC: Adjusted based on a 10% discount rate and a revised cash flow model.
• SoTP-based TP for PetroChina: Reduced due to lower earnings projections and the inclusion of a one-off gain.
• Valuation Table: Shows various valuation metrics including P/E, EV/EBITDA, and P/B, with PetroChina and CNOOC showing lower valuations compared to global peers.
• Pipeline Restructuring Details: Includes asset ownership, net book value, and appraised value for different segments of the West East Gas Pipeline.

5. Market Outlook

• Short-term Earnings Challenges: All companies are expected to suffer losses in 1Q16E, with a gradual improvement expected in subsequent quarters.
• Potential Recovery: A moderate rebound in oil prices from the low base in 1Q16 is anticipated, which could lead to a recovery in earnings.
• Government Actions: There is speculation about the creation of a national pipeline company, but it is considered unlikely at the current stage. The government is more likely to focus on improving pipeline pricing mechanisms and facilitating third-party access.

Summary of Key Financial Metrics

Conclusion

Despite the current challenges due to lower oil prices and RMB depreciation, there are buying opportunities anticipated as the market may recover. PetroChina and CNOOC are highlighted as BUY candidates due to their potential for recovery and the inclusion of one-off gains. SSC and COSL are expected to face more severe challenges, especially in the short term, with COSL struggling for breakeven in 2016E. The RMB depreciation is seen as a positive factor for oil companies but a negative for OFS. The long-term oil price projection remains positive, suggesting a potential rebound in the sector.