Comparing CNPC's historical ROE changes with the oil price relationship, we found a systemic improvement.

The average value of 2022-2024Q1 is 88 US dollars/barrel. Compared with the 2011-2014 oil price of 108 US dollars/barrel, it is still far from returning to the previous high. However, CNPC's average ROE for 2021-2024Q1 is 11.7%, which is slightly above average ROE of 11.5% from 2011-2014.

The systematic improvement of CNPC's ROE mainly comes from three aspects:

1) Policy dividends: Natural gas market-based reforms promote continuous price increases, from 1.37 yuan/square meter in 2018 to 2.08 yuan/square meter in 2023. In addition, the company continues to develop the downstream gas value chain.

2) Ethane cracking and reshaping refining value: The company currently accounts for 16% of ethylene in lightweight routes. It is estimated that after the “15th Five-Year Plan” is fully completed, the company's lightweight route ethylene production capacity will account for 29% of CNPC's ethylene production capacity.

3) Cost reduction: The company's three fees have cumulatively decreased by 29.3 billion yuan over the past ten years from 2014-2023, mainly due to the continuous decline in management expenses.

Profit forecast: Maintain the 24/25/26 profit forecast (net profit to mother) of 1703/1793/1901 billion yuan. A shares correspond to PE 10.75/10.21/9.63 times, and H shares correspond to PE 8.3/7.8/7.4 times. Assuming a dividend ratio of 50%, A shares correspond to a 24-year dividend yield of 4.7%, and H shares correspond to a 24-year dividend yield of 6.0%. Maintain a “buy” rating.

Risk warning: The global economic recession brings about a decline in demand for crude oil, leading to a sharp drop in oil prices; the risk that natural gas market-based policies are not being promoted; and the risk that new projects such as the company's ethane cracking will fall short of expectations.