CNOOC Ltd - 2024 Strategy Preview
- FY23E production up 8% y-o-y, higher than guidance of 5%; FY24-25 production targets lifted by 2-7%
- In its 2024 Strategy Preview, CNOOC raised 2024 capex to Rmb125-135bn, supporting accelerated growth on higher base
- Dividend policy maintained; expect HK$1.20/share in FY24 or 8% yield based on 40% payout
- Revised up FY23-25F earnings by 6-11% and TP to HK$16; reiterate BUY
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Higher capex guidance. CNOOC spent ~RMB128bn capex in FY23E, in line with the adjusted guidance of RMB120-130bn. Management has also guided higher capex spending of Rmb125-135bn for FY24F, as it increased development capex to support future growth. While this is marginally higher than 2023 levels, it is 25-35% higher than the Rmb100bn levels in 2021/22. Approximately 63% of the capex will be deployed for development projects, 16% for exploration and 19% for product capitalization. More projects expected in China with domestic capex as a proportion of total capex projected to make up 72% in FY24F. Recent exploration efforts have generated positive returns; Reserves Replacement Ratio (RRR) is expected to stay above 100% at >130%.
Green initiatives. CNOOC aims to increase its natural gas production, the transitional cleaner fossil fuel, to c.30% of total output by 2025, from 20-25% currently. It is also actively promoting exploration of tight gas and deep-play coalbed methane (CBM). In addition, it continues to grow the deep-sea floating wind power as part of its renewable drive.
Dividend policy maintained. CNOOC paid HK$0.65/sh interim dividend for 1H23, we expect similar final dividend, bringing full year dividend to c.HK$1.2/sh, or over 8% yield.
CNOOC maintains its commitment to pay out at least 40% of profits as dividend and absolute dividend to be not less than HK$0.70 (c. 5% yield) for FY22-24. Assuming 40% payout, we project DPS to be around HK$1.2 in FY23-25, implying c.8% dividend yield. We believe the dividend payout is sustainable as projected OCF of ~Rmb200bn is sufficient to fund capex and dividends.
Earnings revisions. We have adjusted our forecasts to reflect the higher production growth and capex. Our FY23-25F earnings forecasts are revised up by 6-11%.
In 1H23, CNOOC reported net profit of Rmb64bn on the back of ~ US$74/bbl realised oil price. We expect the company to report slightly higher profit in 2H23E in view of 3% higher output and steady average oil price.
Reiterate BUY and TP of HK$16. Our DCF-based TP is adjusted to HK$16 after raising earnings and capex as well as rolling over to FY24F. We continue to like CNOOC. While oil price seems normalizing to US$80/bbl range, CNOOC could surprise on the upside with accelerated growth and cost management. The improving sentiment of a recovery in China could drive valuation re-rating, and the share buyback exercise should also lend support to share price. Valuation remains undemanding at 0.9x PB and <5x FY24PE with a high dividend yield of ~8% in FY24-25.
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