PetroChina Company Limited (601857.SS)

Equity
China
Energy

RISK

RETURN

Key risk factors

Strong & resilient to price shocks

Low price volatility

Fair trading liquidity

Key return factors

Good growth

Decent dividends

Good margins and returns

Company profilePetroChina Company Limited, together with its subsidiaries, engages in a range of petroleum related products, services, and activities in Mainland China and internationally. It operates through Exploration and Production, Refining and Chemicals, Marketing, and Natural Gas and Pipeline segments. The Exploration and Production segment engages in the exploration, development, production, and marketing of crude oil and natural gas. The Refining and Chemicals segment refines crude oil and petroleum products; and produces and markets primary petrochemical products, derivative petrochemical products, and other chemical products. The Marketing segment is involved in marketing of refined products and trading business. The Natural Gas and Pipeline segment engages in the transmission of natural gas, crude oil, and refined products; and sale of natural gas. As of December 31, 2021, the company had a total length of 26,076 km, including 17,329 km of natural gas pipelines, 7,340 km of crude oil pipelines, and 1,407 km of refined product pipelines. The company is also involved in the exploration, development, and production of oil sands and coalbed methane; trading of crude oil and petrochemical products; storage, chemical engineering, storage facilities, service station, and transportation facilities and related businesses; and production and sales of basic and derivative chemical, and other chemical products. The company was founded in 1999 and is headquartered in Beijing, the People's Republic of China. PetroChina Company Limited is a subsidiary of China National Petroleum Corporation.

Valuation: Fairly valued

Multiple

TTM

NTM

P/E

11.40

10.60

PEG

2.30

P/B

1.20

1.00

P/S

0.60

P/FCF

12.60

21.00

EV/EBITDA

5.20

4.40

From both historical and forecast perspectives, the stock is fairly priced compared to similar stocks. In particular, the stock is reasonably priced on P/E, 'cheap' on EV/EBITDA, and trading at neutral levels on P/FCF.

Performance: Mixed

The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). The stock has outperformed this peer group by 35ppts over past six months and grown 7ppts slower in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.

Analyst view: Neutral

The average target price is 9.4 and suggests 6% downside potential. Usually, this means a SELL recommendation among investment firms, or a recommendation to decrease one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 13.7. This translates into 36% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 4.8. This is equivalent to 52% downside potential in the worst case.

Profitability: Good

RoE

PetroChina Company Limited reported a return on equity (RoE) of 11.1% in the last 12 months, down from 11.3% in FY22. The market consensus projects an RoE of 10.8% in FY24, again behind its peers.

RoA

Another important profitability metric, return on assets (RoA), amounted to 5.9% in the last 12 months, an increase from 5.8% in FY22. The market analysts predict that RoA will be 5.7% in FY24, again weaker than its peers.

RoCE

In the last 12 months, the return on capital employed (RoCE) grew to 7.8%, below the peers. The consensus estimate for FY24 for RoCE is 11.5%, again behind the peers.

Net margin

EBITDA margin

Historically, 601857.SS has reported modest net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 5.6%, a growth from 4.6% in FY22. The company has reported modest EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 12.5% in the last 12 months, up from 12.0% in FY22.

RoIC / WACC = 1.6(good value creation)

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 1.6 in the past several years. This ratio implies a good shareholder value creation.

Growth: Good

Revenue

EBITDA

EPS

Free cash flow

601857.SS reported revenue of CNY 2 918 079mn in the last 12 months, down 10% from FY22. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS grew 9% from FY22 to CNY 0.88. Market expects EPS to reach CNY 0.91 in FY24.Revenue growth has been constrained in the past several years (negative-to-neutral), while EBITDA has grown rapidly in recent years (positive). This all contributed to very fast EPS growth (strongly positive). Free cash flow, on the contrary, has climbed rapidly in recent years thanks to good cash generation, in contrast to the EBITDA dynamics. We emphasize the highly volatile dynamics of revenue, EBITDA and EPS.

Dividends: Decent

Dividend paid

Dividend yield

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, but the dynamics are unclear. In the past 12 months, the dividend yield has been strong and significantly above its peers. On average, the company pays dividends twice a year.

Default risk: Moderate

The risk of default is moderate. We note strong positions in its industry, strong debt servicing capacity, adequate interest coverage, solid cash flow generation, and an favourable capital structure, among the positive credit factors. Among the negative credit factors and we point to slow historical revenue growth, and poor working capital management.

Volatility: Low

In normal market circumstances, 601857.SS is not overly volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will remain relatively stable. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to negligible. We would also like to highlight the negligible intraday volatility of the instrument.

Stress-test: Negligible

In highly turbulent market conditions, 601857.SS is not volatile. In other words, the stock will fall far less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be very low.

Selling difficulty: Small

601857.SS has above average trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and becomes extremely unfavourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.

Country risk: Low

The institutional, legal, and compliance risks associated with the company's country are close to minimal. In combination with rigorous business standards, shareholder rights are well protected.

Other risks: Negligible

No other major risks have been identified.