PetroChina -A:Losses on gas imports likely to narrow with decrease in costs
Losses on gas imports likely to narrow with decrease in costs.
PetroChina's cost of gas imports has decreased rapidly. The average price of Maypipeline gas imports and April LNG imports dropped sharply by Rmb0.6-0.7/cbm fromthe same period last year to Rmb1.23/cbm and Rmb1.63/cbm, respectively. Afterconsidering pipeline fees and based on the highest city-gate price for non-residents,losses on gas imports fell to Rmb0.1-0.2/cbm, significantly smaller losses than last year.
We are raising our earnings estimates on higher oil price forecast.
We are raising our 2016-18E EPS from Rmb-0.24/0.00/0.50 to Rmb-0.11/0.18/0.51,because: 1) UBS raised its 2016/17 oil price forecast from US$42.4/bbl and US$55/bblto US46.1/bbl and US$60/bbl, so we are correspondingly raising our estimates for thecompany's upstream earnings; 2) we are lowering our forecast for the company's 2016cost of gas imports to reflect the recent changes in the cost of imports.
Share price has factored in oil price expectations of US$65-75.
Based on a sum-of-the-parts (SOTP) methodology, we believe PetroChina's currentshare price has basically factored in long-term oil price expectations of US$65-75.
Therefore, even if oil prices go up amid fluctuations, the implied impact would be thatPetroChina's earnings increase closer to the consensus level anticipated by the marketwhich could lead to valuation downgrades.
Valuation: Raising PT; maintain Neutral.
We are slightly raising our SOTP-based PT to Rmb7.99 (from Rmb7.63), which implies a20% NAV discount for the upstream segment; we use EV/EBITDA for the downstreamsegment. We maintain our Neutral rating. Although the fundamentals of thecompany's gas segment have improved, oil prices are a stronger determinant of theshare price.