1H17 net profit is in line with expectations

CNOOC announced 1H17 results: revenue of 5.1 billion yuan, an increase of 32% over the same period last year, and net profit changed from a loss of 120 million yuan last year to a profit of 290 million yuan per share. The performance is in line with our expectations, but also in line with the company's previously forecast net profit range of 280 ~ 300 million yuan. According to our estimates, the company recorded an one-time fee of more than 80 million yuan in the first half of the year, so the net profit of non-return may exceed 370 million yuan, which is better than our previous forecast of 350 million yuan. The company's product sales increased sharply in the first half of the year, including urea sales up 22% year-on-year, while production increased 10% year-on-year; phosphate fertilizer and compound fertilizer sales increased 35% year-on-year, while output was basically the same as the same period last year.

Trend of development

Fukushima II plant overhaul. The company announced that the Fukushima II plant will be stopped and overhauled for about 30 days from August 23 this year, and the urea output is expected to be reduced by 75000 tons.

High coal prices are expected to support the rise in urea prices in the second half of the year. We believe that urea prices are still expected to rise in the second half of this year, supported by seasonal demand and higher coal prices. At the same time, more stringent environmental inspections may accelerate the elimination of backward production capacity.

Profit forecast

We keep our earnings per share forecast for 2017 / 2018 unchanged.

Valuation and suggestion

At present, the company's share price corresponds to 10 times 2017 earnings. We maintain our recommended rating and target price of HK $3.20, which is 44.14% upside from the current share price.

Risk.

The demand for fertilizer is lower than expected; the environmental protection inspector is weak; the plant is stopped.