Share Price HK$14.82
Target Price HK$14.00
1H13: Net Profit Of Rmb34.4b, Up 8.2% yoy, And 13% Above Consensus
CNOOC reported 1H13 net profit of Rmb34.4b, up 8.2% yoy, and 13% above consensus. This was mainly due to a higher-than-expected earnings contribution from Nexen and lower-than-expected all-in cost increase. From 2H13 onwards, we expect to see earnings risk from the Nexen deal, oil price volatility and cost inflation. Maintain SELL. Target price: HK$14.00.
• Net profit of Rmb34.4b, up 8.2% yoy. China National Offshore Oil Company’s (CNOOC) net profit increased 8.2% yoy to Rmb34.4b. Earnings were also 13% above consensus of Rmb30.5b, largely due to a higher-than-expected earnings contribution from the Nexen deal (Rmb190m vs our forecast of zero) as well as lower-than-expected allin cost increase in the period (9.3% yoy vs our forecast of 15% yoy).
• The company declared an interim dividend of HK$0.25/share, +66% yoy, and consistent with the interim dividend payments before 2012. Dividend in 1H12 was lower than normal mainly due to higher capex.
• Output volume of 198.1m boe. Net production rose 23.1% yoy to 198.1m boe in 1H13 mainly due to the 24.8m boe from the acquired Nexen. Of the total volume, crude oil output grew 27.0% yoy and natural gas output increased 9.5% yoy. Management maintains its 2013 production target of 338m-348m boe, with an additional 59m boe from Nexen.
• Lower realised oil price. CNOOC’s realised oil price of US$104.20/bbl was 10.9% yoy lower due to low international oil prices in 1H13. On the other hand, realised natural gas price also dropped 3.7% yoy to US$5.68/mcf due to falling natural gas prices in the domestic market and its traditionally lower gas prices.
• All-in-cost jumped 22.4% yoy including Nexen and 9.3% for CNOOC only. In 2013, CNOOC’s all-in-cost jumped 22.4% yoy, mainly due to the DD&A from the acquisition of Nexen. Excluding Nexen, all-in cost rose just 9.3% yoy, lower compared with our previous forecast of a 15% all-incost increase.
• Expect continued earnings risk from:
a) Cost appreciation. 1H13 all-in cost rose 9.3% yoy. We expect costs to stay high with 10 new projects coming on-stream this year. These will have much higher production costs than its existing fields due to the initial low production. Meanwhile, the company targets a capex of US$9b-12b in 2013, +36-63% yoy, which will result in further increase in DD&A.
b) Earnings risk from Nexen deal. The deal was completed in Feb 13 and is being integrated with CNOOC’s operations. We think there might be some integration costs or even unknown risk from Nexen given that Nexen is the biggest deal done by Chinese oil majors and its wide oil asset exposure in the world is likely to result in more even more complicated issues. This will dampen its earnings. A good example would be Nexen making losses in 4Q12 due to foreign tax issues.
• We maintain our earnings forecasts for 2013-14.
• Maintain SELL. We value the stock at 9x 2014F PE, its historical average in the last five years. We expect cost inflation and potential risks from the expensive Nexen deal to offset the sales volume expansion. This will trigger the stock to be de-rated back to its historical mean valuation.
Share Price Catalyst
• Cost drag on earnings.
Publish date: 21/08/13