Strong beat again in 1Q24
The net profit of CNOOC Limited surged 24% YoY to RMB39.7bn in 1Q24, 9% above our forecast. The discrepancy mainly came from the lower-than-expected cost, higher-than-expected realized oil price and higher-than-expected output. The company is likely to see even higher earnings in 2Q24 given the recent surge in oil price. Its oil and gas output will beat the high end of its guidance if there is no significant disruption from typhoons. We reiterate our BUY call with target price increased to HK$21.84.
Key Factors for Rating
The company's opex and all-in cost dropped 1% YoY and 2% YoY to US$6.91/BOE and US$27.59/BOE respectively in 1Q24. They are 8% and 9% below our forecasts respectively. While the 5% YoY depreciation of RMB against US$ helped, the lower cost of new projects and improved efficiency at Long Lake oil sand project also contributed to the lower cost.
Its realised oil price surged 6% YoY to US$78.8/bbl in 1Q24, 2% above our forecast. The narrower discount of regional benchmarks to major benchmarks like Brent enabled the company to sell at relatively higher price.
The company's total oil and gas output grew 10% YoY to 180.1m BOE, 1% above our forecast. In which, the total output of overseas projects surged 17% YoY to 56.9m BOE mainly on the strong growth in South America and Canada. The former was mainly driven by new projects at Guyana and the latter came from the improved productivity at its Long Lake oil sand project.
The company should see higher earnings in 2Q24 as Brent has stood firmly above US$85/bbl since mid-March. As long as it can hold, we see upside risk in our earnings forecasts as we assume average price of Brent to be US$81/bbl.
Key Risks for Rating
Sharp fall in oil price.
Higher-than-expected costs.
Valuation
We adjust our 2024-26 earnings forecasts by -0.5% to +1.9% after updating our model with its 1Q24 results and its annual report. We also increase our SOTP NAV from HK$21.09 to HK$21.90.
We raise our target price from HK$19.95 to HK$21.84 as we increase our target valuation from 1.5x standard deviation above mean to 2x (now at 0.3% discount vs 5.4% discount previously) in terms of 5-year rolling discount of share price to our estimated NAV. The company's strong performance and investors' preference of high yield plays merit smaller discount.