Assuming Coverage with OUTPERFORM
Price (13 Aug 13 , HK$) 14.56
TP (prev. TP HK$) 20.00 (20.20)
New report: Back to growth
● Assuming coverage with OUTPERFORM and HK$20 TP (37% potential upside). In the past 12 months, CNOOC has underperformed both indices and peers. CNOOC trades at 7.7x/6.9x 2013E/14E P/E—well below the average valuation of 11.3x during 2006-10 when it exhibited strong growth. Full report.
● We expect a 15% production CAGR in the next two years. We expect the company to post strong organic volume growth in 2014E/15E (14.8% CAGR), excluding Nexen.
● We believe this time it will be different given: (1) 30-50 new projects in 2013-15; (2) an impressive 183% three-year average RRR; and (3) Liwan 3-1-1, the largest deep-water gas project in China, contributing to a third of 2014 growth, is on track with planned progress.
● Free cash flow machine. Even in a US$100/bbl oil price environment, CNOOC could generate US$10 bn cash after dividends (payout ratio of 35%). With such strong cash flow, we expect it to raise payout to 35-40% in the next few years.
Strong organic growth in 2014-15E
The company maintains its target of achieving a 6-10% five-year CAGR in production over 2011-2015 (ex-Nexen), which implies growth in 2014-15E would catch up to 14-15%. We expect growth in offshore China to pick up strongly—9%/17% for 2014E/15E.
The company has guided for a strong project line-up in the next three years, with over 30 new projects to be executed over 2013E-15E, among which, two-thirds are estimated to be from offshore China with higher margin.
Notably, the large-size gas field Liwan 3-1-1 in deep-water South China Sea is on track to commence production by end-2013, which will help boost offshore China production growth significantly.
Strong free cash flow generator
In view of the strong production growth and manageable capex, we expect CNOOC to generate Rmb33 bn and Rmb47 bn free cash flow in 2013E/14E, which is way superior to the negative free cash flow seen at Sinopec and PetroChina. In such a case, we estimate CNOOC will gradually lift its dividend payout ratio from 25% in 2012 to 40% by 2015E.
Source/Extract/Excerpts/来源/转贴/摘录: Credit Suisse
Publish date: 15/08/13