China Oil & Gas:Big 3 Underperformed: CNOOC A Bit Better, Yizheng Surged After Restructuring, but Why Did Small-Cap Peers Plunge?

Big 3 underperformed, CNOOC relatively better。

    From August 27 to September 26, the Big 3 underperformed as Brent futures declined from US$102.72/bbl to US$97.00/bbl. CNOOC relatively outperformed with a decline of 8% while Sinopec underperformed with a loss of 11%. The correction is mainly triggered by profit taking given the ~30% market stake transfer has been completed, implying no material positive catalyst in the following 3-6 months.

    Sinopec-series small-cap outperformed 。

    Despite Sinopec’s underperformance, Sinopec-series small-cap names, including Sinopec Shanghai and Sinopec Kantons, outperformed in the past month. We believe investors are expecting potential restructuring opportunities given the marketing reform has been completed.

    Yizheng surged after restructuring。

    After resuming trading on September 15, Yizheng has surged by 112%, mainly thanks to the swap of loss making chemical assets and injection of oil field service assets.

    …but why did small-cap peers plunge?We believe this is mainly due to 1) capital’s relocation to Yizheng given its market cap has increased by HK$6.4 bn since September 15 while the aggregate market cap of Anton, SPT, Hilong and Honghua fell by HK$4.4 bn; 2) Anton’s further de-rating, which dragged down the overall valuation of small-cap peers.