PetroChina’s Strong First-Half 2022 Earnings Largely Expected; Boosted by Robust Upstream Earnings

PetroChina’s first-half 2022 net profit of CNY 82.4 billion, up 55% year on year, was in line with its profit alert issued July 2022. Higher energy prices, effective cost controls and inventory gains drove earnings up. We raise PetroChina’s fair value estimate to HKD 4.92 per H-share (CNY 4.28 per A-share) from HKD 4.60 (CNY 3.72), after updating our energy price and foreign exchange assumptions. We reduce our Morningstar Uncertainty Rating to High from Very High as we see energy prices staying at levels that support PetroChina’s earnings. We think PetroChina’s H-shares are undervalued but our preferred pick for the sector is CNOOC, given its upstream focus and cost efficiency.