• Doing national service again
• Gas price hike ends earlier
• NPC details needed but no clarity on timeline

Hit by Oil Price Fall and COVID-19 in China; Gas Price Hike Ends Earlier With National Service

Since our last report on 31 October 2019, the share price of PetroChina has dropped by 23%, based on the closing price of 5 March 2020. This is greater than the 18% fall in Brent crude over the same period, and this is possibly because of China’s NDRC’s decision to cease the usual 20% city-gate price hike for winter from February 2020. This is to reduce the cost burden or domestic enterprises due to COVID-19, and the end of the hike comes two months earlier than the typical winter price hike window.

A back-of-the-envelope calculation shows that the shortened price hike window represents a loss of about RMB6b revenue for PetroChina, or a ~RMB2b bottom-line impact. PetroChina’s 2020 gas prices should see a YoY decline. PetroChina raised gas prices by about 6% above the benchmark rate in summer last year, but with the government’s call to help the country along with the current weak gas demand, PetroChina can only charge at benchmark prices at best.

Highlights Policy Risk on Stock

This development highlights PetroChina’s policy risk which has been weighing on the stock over the past few years. Investors have been waiting for details on the National Pipeline Company (which should impact PetroChina via asset pipeline injections) but so far there is not enough substance to judge the outcome for stock prices.

Any announcement of company formation and the assets likely to be injected would be incomplete without details like valuation and timing for injections, ultimate equity stakes and shareholding structure. Without these, an overhang on the stock price could continue to persist. Upcoming 1Q results are also likely to be weak. We adjust our SOTP-based estimates lower and our fair value falls to HK$3.40.

Source: OCBC Research - 6 Mar 2020