3Q24 results are in line with our expectations

The company announced 3Q24 results: 1-3Q24 revenue of 326.4 billion yuan, +6% year-on-year; net profit to mother of 116.7 billion yuan, +19% year-on-year. 3Q24 revenue was 99.3 billion yuan, -14% YoY, -14% month-on-month; net profit to mother was 36.9 billion yuan, +9% YoY and -8% month-on-month. Performance was in line with our expectations. 3Q24's net oil and gas production was 180 million barrels of oil equivalent, +7% year over month, of which 3Q24 oil production was -3% month-on-month. We think it was mainly due to seasonal typhoons and maintenance of some overseas projects; natural gas 3Q24 production was +5% to 235.5 billion cubic feet year over year. 3Q24 achieved an oil price of 76.4 US dollars/barrel, following the trend of oil prices; achieving gas prices of 7.75 US dollars/thousand cubic feet, +3% over the same period last year. The main cost of 3Q24's barrel oil was 28 US dollars/barrel, which was basically the same as the previous year in RMB.

Development trends

Major projects have been successfully put into operation, and annual production is close to the guideline limit. The company's average output in the first three quarters was 180 million barrels of oil equivalent. The main projects put into operation in 3Q24 were oil and gas fields such as Bozhong 19-6, Bozhong 19-2, and the Deepsea 1 Phase II oil and gas fields and the Guyana Payara project. Looking ahead, we remain optimistic about production growth, and we expect the company's annual production to be close to the guideline limit of 720 million barrels of oil equivalent.

Adhering to low-cost operation, stabilizing domestic gas prices weakens the elasticity of oil prices. According to the company announcement, the 3Q24 oil barrel cost was 28 US dollars/barrel, which was basically the same as the previous year. We judge that the company will continue to insist on the $35 per barrel stress test and the full production cost of $28 per barrel to maintain the cost advantage. The company's natural gas sales price is relatively stable and the correlation with oil prices is relatively low, thus weakening the elasticity of the company's profits and oil prices.

Capital expenditure for the year is expected to reach the guideline limit, but net cash accumulated to approximately $120 billion. The company's capital expenditure for 1-3Q24 was 95.3 billion yuan, +7% year over year, close to 71% of the annual progress (of which 3Q24 production capital expenditure was 16% YoY and -11% month-on-month to 5.46 billion yuan). We expect it to approach the capital expenditure guideline limit of 135 billion yuan for the whole year. Due to the double-digit return on oil projects and good capital expenditure plans, the company's net cash accumulation has risen to 120 billion yuan, accounting for 15% of the market value of H shares.

Profit forecasting and valuation

We remain unchanged in our 2024/25 earnings forecast. The current A share price corresponds to the 2024/2025 price-earnings ratio of 9x/8x. The current H share price corresponds to 5x/5 times the price-earnings ratio for 2024/2025. A-shares remain outperforming the industry rating and target price of 32 yuan, corresponding to 10 times the price-earnings ratio of 2024 and 10 times the price-earnings ratio of 2025. There is 17% room for growth compared to the current stock price. H shares remain outperforming the industry rating and the target price of HK$24, corresponding to 7 times the price-earnings ratio of 2024 and 6 times the price-earnings ratio of 2025, with 28% upside compared to the current stock price.

risks

International oil prices fluctuated greatly; oil and gas production fell short of expectations; cost control fell short of expectations.