The Chinese oil and gas major PetroChina reported for 1H 2023. The company's revenue decreased by 8.3% YoY to RMB 1,479.9 billion, operating profit increased by 1.3% to RMB 120.6 billion. Net earnings per share increased by 4.4% YoY to RMB 0.47.

Free cash flow also shows good dynamics, which increased by 31.6% YoY to 136.6 billion RMB. Against this background, the company's Board of Directors recommended paying RMB 0.21 per share as interim dividends for 2022. The payout yield is 4.1% - a modest value for the Chinese oil and gas sector.

In annual terms, the most confident growth in operating profit was shown by the retail sales segment, which is associated with the removal of coronavirus restrictions in the country and the restoration of fuel demand. At the same time, the most negative dynamics was demonstrated by the refining segment, whose profit decreased by 23.7% YoY relative to the high base of last year. We also note good operating results: an increase in oil production by 5.0% yoy due to international projects in Central Asia and the Middle East, as well as an increase in gas production by 6.7% yoy due to the development of projects within China.

PetroChina: main financial indicators for 1H 2023 (billion RMB)

Indicator 1H2023 1H2022 %
Revenue 1 479,9 1 614,6 -8,3%
EBIT 120,6 119,0 1,3%
Exploration, production and new energy 85,5 82,5 3,7%
Oil refining and petrochemicals 18,4 24,1 -23,7%
Retail sales 10,9 8,5 28,4%
Natural gas and pipelines 14,1 13,6 3,5%
Other -8,3 -9,7 N/A
EBIT margin 8,2% 7,4% 0,8 p.p.
EPS 0,47 0,45 4,4%
Free cash flow 136,6 103,7 31,6%
Oil production, million barrels 474,3 451,9 5,0%
Gas production, billion cubic feet 2517,1 2358,2 6,7%
Oil refining volume, million barrels 673,0 597,5 12,6%

In our opinion, PetroChina's reporting is neutral for the company's shares. Favorable market conditions allow PetroChina to maintain strong FCF generation, and the company's development projects favorably affect the company's operating results. At the same time, the company's dividends are at a neutral level for the sector, which is why at the moment we do not see an upside in this story.

Our current rating on PetroChina's Class H shares is "Hold". The target price is set at 4.85 HKD, which corresponds to a downside of 14.3%.

* The message is informational in nature, does not constitute an individual investment recommendation or an offer to purchase the mentioned securities.