CNOOC Earnings: Effective Cost Control and Rising Production to Underpin Growth

CNOOC’s 2023 net profit of CNY 123.8 billion, down 13% year on year, was slightly below our expectation mainly due to impairments of CNY 3.5 billion. Operations-wise, the key statistics are in line with guidance provided in January 2024. We raise our fair value estimate to HKD 19.00 per H-share (CNY 17.50 per A-share) from HKD 17.50 (CNY 16.60) after incorporating our latest energy price and foreign exchange assumptions. While we think CNOOC's H-shares are now fairly valued, we believe investors may still prefer to hold companies with direct upstream exposure. The 2023 payout ratio of 44% is in line with our expectation and we keep our payout assumption at 45%. We think forecast 2024 dividend yield of more than 7% for H-shares remains attractive for investors, and shareholder returns will remain a priority for CNOOC.