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Analysis of PetroChina Company Limited

Analysis of PetroChina Company Limited

13 April 2022

PetroChina is a state-owned Chinese oil and gas company. It operates in such segments as:

  • Exploration and production It is engaged in the exploration, development, production and sale of crude oil and natural gas;
  • Refining and Chemistry It is engaged in the processing of crude oil and petroleum products; and also produces and sells primary petrochemical products, petrochemical derivatives and other chemical products;
  • Marketing It is engaged in the marketing of petroleum products and trading business;
  • Natural gas and pipelines It is engaged in the transportation of natural gas, crude oil and petroleum products; as well as the sale of natural gas;

The company was founded in 1999 and is headquartered in Beijing, the People’s Republic of China. 2020 was a difficult year for PetroChina, as well as for most oil and gas companies. Revenue fell by 25%, and net profit decreased by more than two times. However, already at this stage it is clear that the company copes well with financial management – free cash flow has remained high in recent years.

Current multipliers:

P/E 6.7, forward P/E 5.1 (average current by competitors 28.5)
P/B 0.4 (industry average 1.6)
P/S 0.2 (industry average 1.3)
Debt 507 billion yuan with current operating cash flow 382 billion yuan
Dividends 6.7% per annum
Stock Price: $51

The cash flow discounting model shows a fair price of $57.
Simply Wall Street values the company at $100.

PetroChina’s revenue differs significantly, which is associated with oil price spikes, but the operating cash flow has remained stable over the past 7 years, plus or minus 65 billion yuan, from 250 to 380 billion yuan. This means that with such oil prices, dividends in 2022 will be about $4, which gives a yield above 7%.

The stock is trading above the 20, 50 and 200-day moving averages. The 200-day is at 47.5. We believe that purchases are ideal from this level and below. But the current long-term price is not bad either, since until 2020 the PetroChina stock price correlated with the Brent rate, however, over the past 1.5 years the barrel rate has been growing faster than the company’s stock price. We see the upside here. A high dividend yield should help. 

If this company was located in the USA, it would cost 2-3 times more. However, Americans are afraid of Chinese companies, considering them too risky, while PetroChina is a stable state-owned company of one of the most powerful economies in the world. Nothing will happen to it even if oil prices fall. However, current world events are only pushing the price of a barrel up. According to multipliers, Brazilian Petrobras is seen a little better, but the Chinese economy is much more stable than the Brazilian one.

13 April 2022
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