Asia Pacific Energy: Oil: Initiate on Chinese oil majors; focus on FCF sustainability; Buy CNOOC, Sell Sinopec
Chinese oil majors are moving into a phase of both higher investment and higher production growth. As such, cost structure is a key differentiator for sustainable FCF generation. We believe CNOOC’s highly competitive new projects portfolio offers uniquely low-cost growth as oil prices rise and non-OPEC production growth stalls. Even in a spot oil price scenario, we find that CNOOC can generate positive FCF post dividend, and its implied cash flow multiples are near the bottom of their 10-year historical range. We expect Sinopec shares to underperform our coverage due to higher downstream exposure and a challenging industry positioning, leading into a subdued earnings/returns outlook. We therefore initiate coverage of the Chinese oil majors with a Buy on CNOOC, a Sell on Sinopec and a Neutral on PetroChina.
22 Nov 2020 | 7:12pm SGT | 74pg | Research | Equity - Nikhil Bhandari and others
China Energy: Gas: Positioned for mid-decade demand acceleration - Initiate on China Gas distributors; Buy ENN, China Gas
We believe gas distributors, sitting at the downstream of the China gas value chain, are well positioned to benefit 1) near-term from the upstream gas-on-gas competition (2021-24) due to reforms liberalizing China's gas market, likely resulting in increased gas supply and lowered gas cost; 2) long-term from the potential mid-decade coal-to-gas acceleration (2025-26) that could readily translate into meaningful sales increase for distributors; and 3) from new profit drivers starting to gain momentum given the narrowed pricing gap between coal and oil/gas.
22 Nov 2020 | 6:02pm HKT | 52pg | Research | Equity - Amber Cai and others
BUY: CNOOC, ENN, China Gas
NEUTRAL: PetroChina, Kunlun Energy, China Resources Gas