Strong results beat expectations
CNOOC’s growth engine is on track to restart. Its current valuations still pose a good entry point to accumulate the stock.
1H13 EPS was 7% above at 57% of our full-year forecast due to volume growth and lower tax. CNOOC is positioned to stage a comeback with volume growth in FY14 and FY15. Our target price is based on 9.8x CY14 P/E (2007-2010 historical average), which implies an upside of 22% with a dividend yield of 3.3%. We maintain CNOOC as our top pick in the China oil space. Maintain Outperform with new projects launch and appraisal and discovery success as catalysts.
1H13 EPS was 15% higher than consensus
CNOOC’s 1H13 EPS of Rmb0.77 was 15% higher than consensus estimates and 7% higher than our Rmb0.72 estimate. This was largely driven by strong production growth of 23% yoy and organic production growth of 7.7% after excluding the M&A impact of Nexen. Tax credits from capex invested in the Egina oilfield in Nigeria as well as the Nexen consolidation had a positive impact on tax payments and reduced its effective tax rate in 1H13.
Production on track
The return of volume growth was evident in 1H13 with 23.1% yoy growth in net production, and 7.7% yoy excluding Nexen. Management remains confident about achieving its full-year production target of 338-348mmboe (excluding Nexen), while we expect CNOOC to achieve its high-end target range. With lacklustre volumes since 2010, we expect strong volume growth of 11% yoy in 2014 and 12% in 2015 from strong project pipeline. Ten new fields in offshore China are scheduled to come onstream towards end-2013 and 24 projects that are under construction and scheduled for completion this year will contribute to the growth prospects for the next 2-3 years.
The stock has outperformed the MSCI China by 7.4% since our initiation and is currently trading at 8.2x FY14 P/E. We believe that CNOOC should trade closer to its growth phase valuation of 10x, and our target price of HK$18/share represents 22% upside. CNOOC remains our top pick in the China oil sector.
Publish date: 20/08/13