PETROCHINA(601857)：WITH SOE BEING REVALUED THE OIL AND GAS GIANT AWAITS TO TAKE OFF

　　Investment Thesis
　　National policies drive increased reserves and production, and with oil prices hanging at high levels, PetroChina's upstream business is developing steadily. Policy: We expect oil prices to remain at high levels in 2023. 1） Supply side: the global capital expenditure of upstream resources has limited growth, and rising oil prices have not increased the enthusiasm for global capital expenditure. Russian exports have increased, but production capacity has entered a period of decline; some OPEC+ countries have reached their production limits; US crude oil production is gradually recovering, but the increase in output is limited, with an average annual increase lower than pre-pandemic levels. 2） Demand side: global crude oil demand has not yet peaked and remains in a growth trend. With policy support and high crude oil prices, PetroChina has increased capital expenditure in the upstream exploration, effectively managing oil and gas operating costs and pushing the upstream business towards high-quality development.
　　As policies become stricter and demand for refined oil products rebounds, the performance of the refining and chemical segment is expected to improve with an expanding overseas price difference. Policy: as China is promoting the upgrade for refining companies, the growth in substantial refining capacity is restricted. PetroChina's refining and chemical segment looks promising as it has several key refining and chemicals projects under construction. Refined oil: 1） Domestic market: the price difference between gasoline, diesel, and crude oil has reached a temporary high, while demand for refined oil products is recovering. 2） Overseas market: the price difference for refined oil products is expanding, and the export quota for refined oil products is increasing. We expect PetroChina's domestic and overseas profits in the refining and chemicals segment to rise. Ethylene: China relies heavily on imports of ethylene. As the country's leading ethylene producer, PetroChina has long adhered to an innovation-driven strategy and has been the first in China to complete the industrial test of direct crude oil cracking to produce ethylene, with a clear industrial competitive advantage. In addition, refining and chemicals companies are continuously promoting the production capacity layout of downstream new material, driving demand increase for ethylene.
　　With ongoing reform of central state-owned enterprises, we expect PetroChina to be re-evaluated. PetroChina has excellent earnings performance, high concentration in its main business, and focuses on shareholders' returns with high dividend yield. PetroChina's P/B ratio is much lower than other leading petrochemical and chemical companies and is expected to return to a rational level under favorable policies.
　　Earnings Forecast & Rating: We forecast PetroChina's 2023-2025 net profit and EPS to be RMB138.919/141.729/148.088bn （-7.00%/+2.02%/+4.49% YoY） and RMB0.76/0.77/ 0.81, indicating P/E of 8.13x/7.97x/7.63x and P/B of 0.78x/0.74x/0.70x. We initiate with the “Buy” rating.
　　Catalysts: Higher-than-expected domestic economic recovery; favorable valuation policy for state-owned enterprises; ongoing high levels of oil prices; increased export quotas for refined oil products; stricter supervision of consumption tax on refined oil products; declined overseas natural gas prices; accelerated domestic natural gas price reform.
　　Risks: Geopolitical risks; macroeconomic volatility risks; slower-than-expected recovery in demand for refined oil products; declined oil price; rising overseas natural gas price.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。