Key points of investment

Incident: In the first three quarters of 2024, the company achieved operating income of 2256.28 billion yuan (-1.1% YoY), net profit to mother of 132.52 billion yuan (+0.7% YoY), and net profit of 135.22 billion yuan (YoY +0.5%). Among them, 2024Q3 achieved operating income of 702.41 billion yuan (-12.45% YoY, -5.3% month-on-month), net profit to mother of 43.91 billion yuan (-5.3% YoY, +2.3% month-on-month), and net profit of 43.63 billion yuan after deducting non-return to mother (-7.5% YoY, -4.7% YoY).

The upstream sector's profit increased, and overseas projects were newly acquired: in the first three quarters of 2024, the oil and gas sector's operating profit was 144.3 billion yuan, +11.6 billion yuan year on year (+9% year over year). 1) Price: In the first three quarters of 2024, the realized price of oil was 76.88 US dollars/barrel (+2.1% YoY); in the first three quarters of 2024, the price of gas was 2.23 yuan/square meter (+1.0% YoY). 2) Volume: In the first three quarters of 2024, the growth rate of crude oil production exceeded the 2024 target, and the growth rate of natural gas production was close to the 2024 target. In the first three quarters of 2024, oil and gas equivalent production was 1,342 million barrels of oil equivalent (+2.0% year over year; 24-year target +0.4%), including net oil production of 708 million barrels (+0.3% year over year; 24-year target -3%), natural gas 107.6 billion cubic meters (+4.0% year over year; 24-year target +4.3% year over year). In terms of acquiring new projects, the overseas business stepped up efforts to acquire new projects, continuously optimized the asset structure, and successfully signed oil product sharing contracts for the 14 and 15 blocks of the Surinamese Shallow Sea.

Refining profits have narrowed, and chemical profits continued: in the first three quarters of 2024, the refining and chemical sector's operating profit was 15.3 billion yuan, -12.5 billion yuan (-45% year over year). Specifically, in the first three quarters of 2024, refining operating profit was 11.8 billion yuan, -15.9 billion yuan (-57% year over year). In the first three quarters of 2024, refined oil production was 89.91 million tons, -2.54 million tons year on year (-3% year over year). 2) In the first three quarters of 2024, chemical operating profit was 3.5 billion yuan, +3.4 billion yuan year-on-year. The company continues to promote the transformation and upgrading of the refining and chemical business. The construction of key transformation and upgrading projects progressed in an orderly manner, and the Blue Ocean New Materials Project was officially launched.

Sales sector profit narrowed: In the first three quarters of 2024, sales segment operating profit was 12.9 billion yuan, -4.4 billion yuan year on year (-25% year over year). Total sales of refined oil products were 119.89 million tons, -5.74 million tons year on year (-5% year over year).

The profit of the natural gas sales sector increased dramatically: in the first three quarters of 2024, the operating profit of the natural gas sales sector was 25.3 billion yuan, +5.8 billion yuan (+30% year over year), mainly due to the company's continuous optimization of the resource pool structure and reduction of comprehensive procurement costs.

The company focuses on shareholder returns: According to our latest forecast, we expect the company's net profit in 2024 to be 175.4 billion yuan, with a total annual dividend of 87.7 billion yuan according to the 50% dividend ratio. At the closing price of October 29, 2024, CNPC A shares will have a dividend rate of 5.8%; CNPC H shares will have a pre-tax dividend rate of 9.0%, tax-deducted at 20%, and 7.2% after tax.

Profit forecast and investment rating: Based on the company's oil and gas production situation and the company benefiting from the natural gas price policy, we adjusted the net profit to the mother for 2024-2026 of 175.4, 182.2, and 186 billion yuan respectively (previously estimated net profit to mother of 183.6, 190.8, and 194.5 billion yuan respectively for 2024-2026). According to the closing price on October 29, 2024, the corresponding PE for A shares is 8.6, 8.2, and 8.1 times, respectively, and the corresponding PE for H shares is 5.56, 5.35, and 5.25 times, respectively. The company has remarkable profitability, excellent cost control, and maintains a “buy” rating.

Risk warning: geopolitical risks; macroeconomic fluctuations; recovery in demand for refined oil products falls short of expectations