Event: according to the three-quarter report, PetroChina's total operating income in the first three quarters of 2017 was 21.1 billion yuan, basically the same as that of the same period last year; its net profit was 5 billion yuan, an increase of 27% over the same period last year (adjusted for restructuring in the same period last year); as of the end of September 2017, the company's assets reached 837.1 billion yuan, an increase of 8% over the beginning of the year. The core marginal changes during the company's reporting period include: (1) smooth asset restructuring and 12 billion yuan capital increase for trust, leasing and banking subsidiaries to improve their capital adequacy ratio and promote performance release; (2) sign strategic cooperation agreements with a number of banks, obtain credit support and plan to strengthen cooperation in multi-business areas.
Matching funds played a role, and the performance increased significantly. During the reporting period, the company increased its capital to Kunlun Trust, Kunlun Financial Leasing and Kunlun Bank by 5.9 billion yuan, 1.2 billion yuan and 5.8 billion yuan respectively. Capital increase will help to continue to improve the capital adequacy ratio of subsidiaries: the core tier one capital adequacy ratio of Kunlun Bank and Kunlun financial leasing increased from 15.5% and 15.0% at the beginning of the year to 16.8% and 18.2% at the end of June, respectively, and is expected to improve further in the future. Supported by more capital, the company's net profit turned into profit compared with the same period last year. Even if the company's profit for the same period last year was calculated on a restructuring-adjusted basis, the company's net profit in the first three quarters still increased by 27% compared with the same period a year earlier.
The subsidiaries develop in coordination. (1) CNPC Finance: the proportion of CNPC Financial operating income reached 52% in the first half of the year. It is expected that in the future, it will continue to have good industry and financial coordination with Petrochina Company Limited Group to provide financing services for key projects of member enterprises in countries and regions along the "Belt and Road Initiative" route; (2) Kunlun Bank: the gross profit margin of this sector rose by 7 percentage points in the first half of 2017, with net profit accounting for 24% of the group. It is expected that in the future, the international business will be further expanded based on the international settlement services of the energy cooperation zone; (3) Kunlun Trust: in the third quarter, Kunlun Trust issued 12 new trust products with a total scale of 2.4 billion yuan. It is expected that after the increase in capital, the size of the trust will be further increased and transformed to active management. (4) Kunlun financial leasing: the net profit of this sector increased by 20% in the first half of 2017 compared with the same period last year, and the capital injection is expected to promote the development of asset securitization business.
It is supported by bank credit to broaden the financing channels. In the third quarter, the company signed strategic cooperation agreements with Agricultural Bank Of China, China Construction Bank Corporation and Everbright Bank, which received 60 billion yuan, 60 billion yuan and 30 billion yuan of intentional credit lines respectively. In addition, CNPC will strengthen cooperation with banks in settlement, interbank, asset management, channel business, agency business, supply chain finance and other business areas. We believe that such cooperation agreements will help to broaden the channels of corporate financing and financial business operations and improve financing efficiency.
The reform of state-owned enterprises improves corporate performance. The reform of state-owned enterprises has accelerated significantly since 2017, and a series of reforms such as asset injection, employee stock ownership and equity transfer will be accelerated in the future. We believe that the company is expected to give full play to its advantages of complete license and close integration of industry and finance under a more market-oriented incentive mechanism, and each business will develop in an all-round way.
Investment advice: buy-An investment rating, 6-month target price of 23 yuan. We expect the EPS of the company from 2017 to 2019 to be 0.80,0.99 and 1.07 yuan.
Risk hints: market risk, policy risk, business risk