For the first time, the energy safety ballast stone covered the A/H “building/buying” rating company as an integrated leader in the domestic oil and gas sector. In terms of oil and gas extraction, natural gas production has steadily increased, and extraction costs have been gradually optimized; imported gas expansion sources, pressure reduction and import costs, and the demand side complies with the general trend of market-based reforms to promote natural gas prices; and the petroleum processing sector promotes the upgrading of traditional refineries. Refined oil products benefit from pattern optimization. We expect the average price of Brent crude oil to be 82/80 US dollars/barrel in 24-25. The company's overall profit weakens due to fluctuations in oil prices, and the company strengthens market value management assessments. The net profit for 23-25 is estimated to be $1628/1769/188.2 billion, respectively, and the corresponding EPS for A-shares is $0.89/0.97/1.03, referring to the Hong Kong dollar exchange rate of 0.91. The company's EPS for Hong Kong stocks in 23-25 was HK$0.98/1.07/1.13, referring to the comparable valuation level of the A/H share company ( Wind/Bloomberg agreed to expect an average of 10.4/7.1xPE in 2024), giving A/H shares 10.4/7.1xPE with a target price of 10.09 yuan/7.60 HK$7.60 per share, giving A/H an “increase/buy” rating, respectively.
The volume and price of the “carbon-neutral” bridge gas business has risen sharply, and the company's comprehensive cost of natural gas is steadily declining. As a bridge for fossil energy under “carbon neutrality,” demand is expected to rise steadily. With the development of China's natural gas market-based reforms, gas companies are promoting favorable prices. In terms of cost, the company's self-produced gas was accompanied by an increase in exploration volume of high-quality resources, and unconventional gas development technology is expected to continue to increase after 22 years from 29.5% to 43.5% of total oil and gas production, and extraction costs are steadily declining. Pipeline gas sources with a high proportion of imported gas are gradually becoming abundant, and comprehensive import costs are expected to decline. The company's comprehensive cost advantage in domestic gas supply enterprise competition is prominent, which is conducive to gaining access to the incremental market. The rapid development of natural gas has made the company's performance less sensitive to fluctuations in oil prices.
Crude oil has entered an era of stocks, and the supply side supports high price fluctuations
In the context of “carbon neutrality,” long-term demand for crude oil is expected to weaken. From a medium-term perspective, we believe that the pricing strategy of oil-producing countries is shifting to “benefits over quantity”, that production cuts have been implemented since 2021, and continued excessive production cuts have further strengthened this expectation. Considering that the fiscal balance cost of major oil producers such as Saudi Arabia is in the range of $60-80 per barrel in 2024, we expect the average price of Brent crude oil to be $82/80 per barrel in 24-25.
In the short term, since 2022, the global downstream refinery cracking price spread has fallen back to normal levels, terminal travel demand has not easily boosted significantly. Refined oil stocks in the northern hemisphere rapidly accumulated in 23Q4, causing crude oil demand expectations to weaken and suppress oil prices. In this context, the Red Sea crisis has become the key to supporting the operation of high oil prices.
Refined oil products benefit from supply pattern optimization. After the downstream refined oil industry experienced rectification, compliant refineries and gas stations benefited from industry pattern optimization; in terms of petrochemical products, on the one hand, the company uses its own resources such as by-product gas to reduce chemical costs, and on the other hand, the company accelerates the upgrading of production capacity in traditional refineries, expands the scale of chemicals, extends the industrial chain, and expands the layout of new materials.
Risk warning: 1) the risk of a sharp drop in international oil prices; 2) the risk that China's macroeconomic demand recovery will not meet expectations; 3) the risk of significant excess international natural gas resources.