It is estimated that the profit in the first half of 2018 will increase by 148% over the same period last year.
On July 20, 2018, CNOOC issued a profit forecast, and the company is expected to make a net profit of RMB7.20-750 million in the first half of 2018. Excluding non-recurrent profit and loss, the company's recurrent net profit is expected to be 6.05-635 million yuan, slightly higher than our forecast of 610 million yuan. The company's gratifying performance is mainly due to the strong domestic prices of urea and methanol in the first half of this year. It is estimated that the non-recurrent profit and loss recorded by the company in the first half of the year mainly include about 60 million yuan from the disposal of Yichang Mining Equity, and a year-on-year increase of about 55 million yuan from the end of depreciation of the main plant in Fudao Phase II.
Pay attention to the main points
The supply-side reform of the domestic chemical fertilizer industry is expected to continue until 2019, when the Chinese government promotes the relocation of scattered fertilizer capacity to chemical parks and the construction of large-scale and efficient integrated units to replace small and backward production capacity. We expect more backward fertilizer capacity, especially in areas such as Hebei and Shandong, to be shut down and relocated in 2018-19. We have observed that although almost all coal urea producers have returned to profitability with the rebound of domestic urea prices since the end of 2017, the capacity utilization rate of the industry is still less than 60%.
Low inventories are expected to keep urea prices high. Domestic ports and producer inventories are currently at historic lows, and it is expected that there is limited room for urea prices to decline during the off-season.
The rebound in oil prices is expected to support methanol prices to remain high. Based on our Brent oil price assumption (the average price is $68 a barrel in 2018 and $73 a barrel in 2019), we expect the average methanol price to remain high at 2350 yuan in 2018 and 2400 yuan in 2019.
Amano polyformaldehyde plant resumes production. CNOOC Petrochemical also announced the restart of a line An of Amano POM plant with an annual production capacity of 20,000 tons and is expected to start selling products in the second half of the year. We expect this to increase the company's net profit by about 30 million yuan in 2018 and 60 million yuan in 2019, respectively.
Valuation and suggestion
We maintain the company's earnings per share forecast for 2018, but raise the company's earnings forecast per share by 13% to 0.29 yuan in 2019 to reflect that Amano's resumption of production is expected to thicken the company's performance and the company's financial revenue is expected to continue to grow. At present, the company's share price corresponds to 0.7 times the price-to-net ratio. We maintain the company's "recommended" rating and target price of HK $3.3 (corresponding to 0.9 times price-to-book ratio, which has about 23% upside over the company's current share price).
Risk.
Demand is weak; oil and coal prices fluctuate.