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The 14 companies under our coverage that reported last week presented a mixed set
of numbers for 3Q10. While Petrochina, Oil Search, RIL and Shanghai Petrochem
numbers were largely in line with our estimates, COSL, Cairn India, Origin, Petronet
LNG, Sinopec and S-Oil reported earnings stronger than our expectations. Also,
ONGC, AWE, GSPL and Gujarat Gas reported weaker-than-expected earnings.
Mixed set of earnings in 3Q10
Crude oil: Brent crude rose by 0.8% w-w to US$82.6/bbl last week, while
WTI crude rose by 1.1% w-w following a 5.9% w-w rise in the US total
product demand and a draw in US product inventories w-w, partially offset by
a build in US crude inventories w-w.
Refining: The Singapore complex margin rose by 4.9% w-w to US$5.4/bbl.
Gasoline margin averaged US$10.8/bbl, down 4.5% w-w.
Petrochemicals: Ethylene-naphtha fell by 16.1% w-w to US$295/tonne.
Benzene margins fell by 4.0% w-w to US$208/tonne.
Best and worst: Stocks in our coverage universe were mixed in absolute
terms last week. Formosa Petrochemical gained the most, rising 4.5% w-w.
Petronet LNG performed the worst, down 12.5% w-w. See Exhibit 24 for
relative performance.
Key news and events from the past week
China’s NDRC increased oil product prices by 3-4%, effective 26 Oct.
Petrochina announced 3Q10 net profit of RMB34.7bn up 12.5% y-y.
ONGC reported PAT of INR54bn (up 6 y-y, 47% q-q).
Cairn India reported PAT of INR15.9bn.
CNOOC announced highest ever production growth in 3Q10 since listing.
COSL’s 3Q10 net profit was RMB1.26bn, down 29% y-y, but up 5% q-q.
Origin reported first-quarter production of 37 PJ, a 45% increase y-y.
Oil Search’s third quarter delivered lower volumes and flat revenues q-q.
AWE reported first-quarter production of 1.56mn boe, 6% lower q-q.
Gujarat State Petronet reported 2QFY11 net profit of INR915mn.
Petronet LNG reported PAT of INR1.31bn (up 9% y-y and 18% q-q).
Gujarat Gas reported 3QCY10 PAT of INR564mn, up 27% y-y.
Sinopec announced 3Q10 net profit of RMB19.6bn (EPS: RMB0.23).
RIL reported its highest ever PAT of INR49.2bn (up 28% y-y, 1% q-q).
Shanghai Pet announced 3Q10 net profit of RMB298mn, down 50% q-q.
S-Oil’s 3Q10 net profit came in better-than-expected due to forex gains.
Petronas Chemicals seeking US$4.2bn in Malaysian IPO.
Exploration and production: crude prices rise 0.8% w-w
The Brent crude weekly average price rose by 0.8% to US$82.6/bbl, while the West
Texas Intermediate (WTI) crude oil price rose by 1.1% w-w to a weekly average of
US$82.0/bbl. Last week’s US Department of Energy (DOE) data showed a build in US
crude inventories by 5.0 mmbbl, while gasoline inventories dropped by 4.4 mmbbl
during the week. There was a draw of 1.6 mmbbl in distillate inventories.
Key developments
China’s NDRC increased oil product prices by 3-4%, effective 26 Oct
The NDRC increased oil product prices in China by 3-4%, effective 26 Oct. This
hike had been expected since crude oil prices moved above US$80/bbl for a
sustained period, triggering the pricing mechanism. The increase is less than that
of international crude price movement (+10%), as the government takes renminbi
appreciation into consideration. Refining margins should improve in Oct to
US$5.7/bbl (the highest in 2010) as a result of this move benefitting refiners
Sinopec, Shanghai Pet and Petrochina. A next trigger could be when the
government refines the mechanism, which is being currently being reviewed.
(Please refer to our note ‘Asia Oil & Gas/Chemicals - A precursor to change’, dated
26 October 2010 at http://www.nomura.com/research/getpub.aspx?pid=397853)
Petrochina announced 3Q10 net profit of RMB34.7bn up 12.5% y-y
Petrochina announced 3Q10 net profit of RMB34.7bn up 12.5% y-y and 6% q-q, in
line with our estimate of RMB34bn. Year-to-Sept10 net profit came in at RMB100bn,
up 23% from RMB81.35bn in 1Q-3Q 09. This was also in line with our expectation
of RMB99.3bn. A major highlight in 3Q10 was the strong earnings contribution from
associates, up 280% y-y to RMB2.9bn, which likely reflects the overseas earnings
contribution. Operating data from various divisions also showed smooth growth and
a decline in oil product inventories. BUY. (Please refer to our note ‘PetroChina [857
HK] - Buy - Results in line; strong associate contribution in 3Q10’, dated 27
October 2010 at http://www.nomura.com/research/getpub.aspx?pid=398493)
ONGC reported PAT of INR54bn (up 6 y-y, 47% q-q)
ONGC reported PAT of INR54bn (up 6 y-y, 47% q-q), marginally below our
estimate of INR55bn. 2Q saw the full benefit of the gas price increase and was
benign in terms of subsidy outgoings. While the gross oil realisation declined by 2%
q-q, the net realisation post discounts increased by a sharp 31% to US$62.8/bbl.
Though ONGC has benefitted from petrol de-regulation and fuel price increases,
the concerns remain on the lack of clarity of the entire subsidy sharing mechanism.
With oil prices firming up and no talks of further fuel price increase, subsidies could
come back to haunt in coming quarters. (Please refer to our note ‘Oil and Natural
Gas [ONGC IN] - Neutral - 2QFY11 - A benign quarter from subsidy perspective’,
dated 28 October 2010 at
http://www.nomura.com/research/getpub.aspx?pid=398865)
Cairn India reported PAT of INR15.9bn
Cairn India reported PAT of INR15.9bn, marginally higher than our estimate of
INR15.1bn. The quarter saw Mangala field reaching its initial peak of 125kbpd and
the first full quarter of sales through pipeline. The quarter saw sharp increases in
operating & financial numbers. Q-Q, gross production grew 74%, revenue grew
220% and profit grew 463%. Company remains confident of reaching current
approved peak production of 175kbpd by end CY11. We continue to like Cairn India
as a good resource story, but non-clarity on change of ownership remains the key
over-hang near term. Maintain BUY. (Please refer to our note ‘Cairn India [CAIR IN]
- Buy - 2QFY11 - Strong set of results, sharp production ramp-up at Rajasthan’,
dated 28 October 2010 at
http://www.nomura.com/research/getpub.aspx?pid=398874)
CNOOC announced its highest ever production growth data (3Q10) since its
listing
CNOOC announced its highest ever production growth data (3Q10) since its listing.
3Q10 oil and gas production surged 49% y-y to 88.7mmboe, as crude oil
production grew 46% to 70.4mmbbl and gas production surged 66% to 106.8bcf.
Year to date, total oil and gas volume has grown 44% to 237.70mmboe, sharply
exceeding its full-year budgeted growth rate of 21-28%. Maintain BUY. (Please
refer to our note ‘CNOOC [883 HK] - BUY : Highest ever production growth’, dated
29 October 2010 at http://www.nomura.com/research/getpub.aspx?pid=398892)
COSL’s 3Q10 net profit was RMB1.26bn, down 29% y-y, but up 5% q-q
COSL’s 3Q10 net profit was RMB1.26bn, down 29% y-y, but up 5% q-q. This was
10% above our RMB1.14bn forecast. We raised our earnings forecasts by 20%
mainly on non-operating items. As a result of the earnings adjustments and a roll
over to reflect our FY11F earnings estimates and outlook, we increased our price
target from HK$8.60 to HK$10.00. We maintain our REDUCE rating, as the current
share price implies 17% downside to our revised price target. (Please refer to our
note ‘China Oilfield Services [2883 HK] - REDUCE: A gradual improvement’, dated
28 October 2010 at http://www.nomura.com/research/getpub.aspx?pid=398565)
Origin reported first-quarter production of 37 PJ, a 45% increase y-y
Origin reported first-quarter production of 37 PJ, a 45% increase y-y on higher
production from APLNG, an increased share of the Otway gas project and higher
Kupe production, which came on stream in December 2009. We see the first
quarter as a good start to the financial year and well on course to meet our full-year
estimates of 133 PJ. BUY. (Please refer to our note ‘Origin Energy [ORG AU] - Buy
- September quarter higher - firing on all cylinders’, dated 27 October 2010 at
http://www.nomura.com/research/getpub.aspx?pid=398277)
Oil Search’s third quarter delivered lower volumes and flat revenues q-q
Oil Search’s third quarter delivered lower volumes and flat revenues quarter-onquarter,
with guidance pointing to volume recovery in 4Q. PNG LNG construction
continues with exploration programs aimed at underpinning a third train on
schedule for 2012. Ongoing strategic review designed to refine vision and outlook
within, and potentially beyond, the company’s current stake in PNG LNG are
expected early next year, with hints of these reviews expected by year-end. BUY.
(Please refer to our note ‘Oil Search [OSH AU] - Buy - Marching on, with next
updates to include a strategic review’, dated 26 October 2010 at
http://www.nomura.com/research/getpub.aspx?pid=397809)
AWE reported first-quarter production of 1.56mn boe, 6% lower q-q
AWE reported first-quarter production of 1.56mn boe, 6% lower q-q on lower oil
production from Tui which saw production slip 34% due to workover during the
quarter. Sales revenues also came in lower, reflecting lower realised pricing, with
reported A$63mn coming in 26% lower qoq, well below our full-year expectations of
A$479mn. We look forward to an improved performance for the rest of the year, as
Tui ramps back up to full production and fresh management additions bring about
change. NEUTRAL. (Please refer to our note ‘AWE [AWE AU] - Neutral - First
Quarter comes in weaker than expected’, dated 29 October 2010 at
http://www.nomura.com/research/getpub.aspx?pid=399106)
Gujarat State Petronet reported 2QFY11 net profit of INR915mn
Gujarat State Petronet (GUJS IN) reported 2QFY11 net profit of INR915mn (down
17% y-y and 13% q-q), below our estimates of INR1.1bn. The revenue was flat q-q,
but the bottom-line declined due to higher operating expenses, depreciation and
deferred tax, mainly on account of investments in windmills. We continue to like
GSPL as a long-term play on the Indian gas story, and its winning last week of two
pipelines is a positive, in our view. However, in the near term the stock could react
negatively to a weak set of numbers. We would use any weakness as a buying
opportunity. Maintain BUY. (Please refer to our note ‘Gujarat State Petronet [GUJS
IN] - Buy - 2QFY11 - Flat topline, but weak bottomline due to higher opex,
depreciation and taxes’, dated 28 October 2010 at
http://www.nomura.com/research/getpub.aspx?pid=398607)
Petronet LNG reported PAT of INR1.31bn (up 9% y-y and 18% q-q)
Petronet LNG reported PAT of INR1.31bn (up 9% y-y and 18% q-q), ahead of our
(INR1.15bn) and consensus (INR1.2bn) estimates. Total LNG re-gasification
volume at 100TBTUs was below our estimate of 111TBTUs; however the company
could report a better bottom-line due to good margins on one spot cargo, lower
internal consumption, some inventory gains and higher other incomes. We maintain
BUY. (Please refer to our note ‘Petronet LNG [PLNG IN] - Buy - 2QFY11 - Ahead of
expectations despite lower volume’, dated 25 October 2010 at
http://www.nomura.com/research/getpub.aspx?pid=397615)
Gujarat Gas reported 3QCY10 PAT of INR564mn, up 27% y-y
Gujarat Gas reported 3QCY10 PAT of INR564mn (up 27% y-y and down 2% q-q),
marginally below our estimates of INR576mn. Despite 6% q-q growth in volumes,
reported EBITDA declined 3% as the company had to purchase costly RLNG to
make up for the shortfall in gas due to shutdown at PMT. Limited volumes upsides
owing to existing network maturity and the current lack of domestic gas availability
remain key concerns, in our view. Management indicates that they are assessing
new areas for bidding in the third round of CGD licensing, which could provide LT
growth. (Please refer to our note ‘Gujarat Gas [GGAS IN] - Reduce - 3QCY10
results - Marginally below estimates’, dated 29 October 2010 at
http://www.nomura.com/research/getpub.aspx?pid=399075)
Refining: margins rise 4.9% w-w
Asian complex refining margins rose by 4.9% w-w last week to US$5.4/bbl, led by a
rise in naphtha and LPG margins, partially offset by a drop in gasoline, jet/kero and
fuel oil margins. Gasoline margins were down by 4.5% w-w to US$10.8/bbl, while
diesel margins remained flat w-w at US$12.3/bbl. Jet/kerosene margins fell by 2.5% ww
to US$13.7/bbl. Naphtha margins were up 7.4% last week, while LPG margins rose
by 10.2% and fuel oil margins were down by 7.4% w-w.
Key developments
Sinopec announced 3Q10 net profit of RMB19.6bn (EPS: RMB0.23)
Sinopec announced on October 28, 3Q10 net profit of RMB19.6bn (EPS: RMB0.23)
up 15% y-y and 4.2% q-q, 8% higher than our forecast of RMB18.2bn. The main
reason for the better-than-expected result is that Sinopec incorporated its newly
acquired upstream Angola asset from its parent which escalated its E+P earnings.
Without the Angola asset injection which enhances its crude production volumes by
around 10%, its 3Q10 earnings would have been in line with our estimates. (Please
refer to our note ‘Sinopec [386 HK] - Buy - Angola asset injection boosts earnings’,
dated 28 October, 2010 at
http://www.nomura.com/research/getpub.aspx?pid=398862)
RIL reported it’s highest ever PAT of INR49.2bn (up 28% y-y, 1% q-q)
RIL reported it’s highest ever PAT of INR49.2bn (up 28% y-y, 1% q-q), in-line with
our estimate of INR48.9bn. Petchem once again surprised on positive with 7% q-q
increase (12.5% higher than our est). Refining margins continued the improving
trend – GRM at US$7.9/bbl (est $8/bbl) were up 32% y-y and 8% q-q. E&P EBIT
declined 11% q-q due to shut down at Panna-Mukta (back into production now).
RIL is our top large cap pick, and despite outperforming the Sensex by 11% in
October, we still think the market has not completely built in strong earnings growth
and potential E&P upside. Maintain BUY. (Please refer to our note ‘Reliance
Industries [RIL IN] - Buy - 2QFY11- In-line results, Pet-chem remains strong,
refining getting stronger’, dated 31 October, 2010 at
http://www.nomura.com/research/getpub.aspx?pid=399424)
Shanghai Pet announced 3Q10 net profit of RMB298mn, down 50% q-q
Shanghai Pet announced on 27 October, 3Q10 net profit of RMB298mn, down 50%
q-q and 46% y-y. The earnings decline was within expectations, since
petrochemical margins took a tumble since May 2010, with the European credit
crisis. However, margins have since rebounded strongly, and we expect the trend
to continue over the next two years. We increased our PT to HK$4.20 as we rolled
over to incorporate our FY11F earnings estimates and outlook. We reiterate our
BUY rating. (Please refer to our note ‘Sinopec Shanghai Petrochem (338 HK) -
BUY: Earnings bottoming in 3Q10’, dated 28 October, 2010 at
http://www.nomura.com/research/getpub.aspx?pid=398566)
S-Oil’s 3Q10 net profit came in better-than-expected due to forex gains
S-Oil’s 3Q10 net profit on October 28 came in better-than-expected due to forex
gains. Both hydroskimming and complex margin (S-Oil's internal calculation)
improved q-q to -US$0.7/bbl (2Q10: -US$2.4/bbl) and US$1.7/bbl (2Q10:
US$0.5/bbl), respectively. The company expects all three business segments to
post better earnings next quarter. The CFO indicated possibilities for higher yearend
dividend in 2010F if 4Q10 earnings are healthy. (Please refer to our note ‘S-Oil
Corporation [010950 KS] - Buy - Leveraging PX expansion in 2011F’, dated 28
October, 2010 at http://www.nomura.com/research/getpub.aspx?pid=398826)
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