Morgan Stanley raises earning forecast for three Chinese oil giants, sees PetroChina as top pick

 

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China’s three state-owned oil giants’ upstream exploration & production business is expected to remain resilient on the back of cost control and the yuan’s depreciation, but earnings in the second quarter of the year will likely drop slightly from the previous quarter due to weaker crude oil prices, Morgan Stanley said in a note.

PetroChina remained the broker’s top pick for the sector due to its structural growth in its natural gas business and improved downstream profitability.

The broker raised the forecast of PetroChina’s earnings per share in 2023 by 9%, maintained an Overweight rating, with a target price of HK$6.5. PetroChina’s H-shares gained 1.8% to close at HK$5.64 on Monday.

Morgan Stanley raised the forecast of Sinopec’s earnings per share by 6% – 15% for 2023-25, raised the forecast of E&P profit due to lower cost assumptions, but lowered the chemical profit forecast due to sluggish demand.

As downstream business performance is expected to be weak, the broker believed the market is picturing downside risks to its profit forecasts, and therefore maintained its Underweight rating and the HK$4.05 target price. Sinopec gained 1.62% to close at HK44.38 on Monday.

Morgan Stanley also lifted the forecast of CNOOC’s earnings per share by 3% for 2023 and 11% for 2025, reflecting lower cost assumptions, but slightly lowered the forecast for 2024 by 2%, mainly due to a 13% cut in oil price assumptions.

Given its relatively low valuation, the broker maintained its Overweight rating and gave it a target price of HK$14.4. CNOOC’s shares gained 2.6% to close at HK$12.6 on Monday.