Performance is in line with our expectations

The company announced 1H24 results: net profit to mother of 79.7 billion yuan, +25% year-on-year, in line with our expectations.

1H24's oil and gas production reached 363 million barrels of oil equivalent, +9%; the company achieved an oil price of 80.3 US dollars/barrel, +9% year over year; and achieved a gas price of 7.8 US dollars/thousand cubic feet, -4% year-on-year. The company plans to pay HK$0.74 per share in the interim, with a dividend ratio of 40%.

Development trends

2Q24 production increased rapidly year over year. The company's production execution efficiency is relatively good. 1H24 oil and gas production is 363 million barrels of oil equivalent, +9% year-on-month, +5% month-on-month; 2Q24 oil and gas production is 183 million barrels of oil equivalent, +9% year-on-year and +1% month-on-month. Looking at the subregions, domestic: 2Q24 oil and gas production of 124 million barrels of oil equivalent, mainly due to the successful commissioning of the Bozhong 19-6 gas field 13-2 block 5 well development project, the Suizhong 36-1/Luda 5-2 oilfield secondary adjustment and development project, and the Wushi 23-5 oil field group development project; overseas: 2Q24 oil and gas production +2% year over year to 58 million barrels of oil equivalent, mainly due to the increase in production due to the commissioning of the Guyana Payara project (+32% to 47 million barrels of oil equivalent). Based on the above performance, we believe it is possible for the company to increase its 24-year production guidelines.

Cost control remains excellent. According to the company's announcement, the cost of the company's 1H24 barrel of oil was 27.8 US dollars/barrel, -1.5% year-on-year, and exchange rate changes contributed to part of the revenue. Looking at the full year, we believe the company's costs are expected to maintain the industry-leading level of $28 per barrel. 1H24's financial expenses were +61% year-on-year to 1.27 billion yuan, mainly due to capitalized interest adjustments (1H24 capitalized interest +0.57 billion yuan year-on-year).

Strong cash flow and a solid balance sheet. We believe that the company's profit is strong at this stage, with a ROE of about 20%, cash on hand of about 240 billion yuan, and interest-bearing debt of about 100 billion yuan. The company's 1H24 capital expenditure was 63.1 billion yuan, +12% over the same period last year. We judged that it was progressing rapidly in history, slightly exceeding our expectations, but we believe that the return on the oil projects invested by the company is high and will bring long-term shareholder returns.

Profit forecasting and valuation

We have kept our profit forecast for 2024/25 largely unchanged. The current A share price corresponds to the 2024/2025 price-earnings ratio of 9.4 times/8.9 times. The current H share price corresponds to the 2024/2025 price-earnings ratio of 6.1 times/5.6 times. A-shares remain outperforming the industry rating and target price of 32.00 yuan, corresponding to 10.1 times the price-earnings ratio of 2024 and 9.6 times the price-earnings ratio of 2025, with 8.1% upside compared to the current stock price. H shares remain outperforming the industry rating and the target price of HK$24.00, corresponding to 6.8 times the 2024 price-earnings ratio and 6.3 times the 2025 price-earnings ratio, with 12.7% upside compared to the current stock price. Furthermore, the company's stock price has recently declined. We believe that the market is mainly concerned about the decline in crude oil prices, but we believe that the H share price anticipates the medium- to long-term oil price of 65 US dollars/barrel. Our current valuation still has a strong margin of safety.

risks

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