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Nikkei Markets

PetroChina slips as profit alert turns focus to weak 4Q

Forecast implies company took a non-recurring loss of 10 billion yuan

PetroChina said it took effective measures to cope with the adverse effect of the drop in oil prices on its inventory.   © Reuters

HONG KONG (Nikkei Markets) -- Shares of PetroChina on Tuesday slid the most in a week as the energy major's forecast for a jump in full-year earnings narrowed market focus on its weaker-than-expected profit for the fourth quarter, prompting a modest downgrade to the company's price target at Goldman Sachs.

PetroChina, mainland China's largest listed energy company by market value, said late on Monday in a preliminary forecast that its profit for the year 2018 will increase by up to 132% to 52.80 billion yuan ($7.76 billion), after factoring in a non-recurring loss of 10 billion yuan. The company had reported a profit of 48.12 billion yuan for the nine-month period ended Sept. 30, up 177.2% from a year ago. The earnings report for 2018 is expected to be released in March.

The company was projected to report a profit of 60.24 billion yuan for 2018, according to the mean of analyst estimates compiled by Reuters.

A sharp slump in global crude oil prices in the last three months of 2018 that helped unravel a recovery in the previous quarters, and an uncertain path ahead, provide the backdrop for the energy sector. Brent crude had entered a bear market in November as prices slumped 35% during the October-December period, halting five straight quarters of gains.

While oil prices have since returned to a bull market, the outlook appears to be uncertain. The International Monetary Fund on Monday cut its forecast for average oil prices in 2019 and 2020 to just below $60 a barrel, down from a previous projection of $69 a barrel for 2019 and $66 a barrel for 2018. Brent crude was down 0.8% at 62.27 a barrel on Tuesday.

Analysts at Goldman Sachs wrote in a report on Tuesday that PetroChina's forecast implied a profit decline of up to 51% in the fourth quarter. They decreased the price target for its Hong Kong-listed shares by 1.7% to HK$5.75, while lifting the company's 2019 earnings forecast before non-recurring items by 0.1%.

Shares of PetroChina were down 3.1% to HK$4.97 as of 3:10 p.m. in Hong Kong on Tuesday, while the benchmark Hang Seng Index was down 1%.

PetroChina, an integrated energy company which also has a presence in refining, fuel marketing and gas distribution, said it took effective measures to cope with the adverse effect of the drop in oil prices on its inventory, and that the non-recurring losses resulted from the disposal of certain non-current assets.

In the first half of 2018, its oil and natural gas equivalent output rose 1.5% to 736.3 million barrels, of which nearly 87% was produced in China. Its refineries processed 551.6 million barrels of crude during that time, up 16.1% year-on-year.

Analysts at Nomura wrote in a report they expect PetroChina's earnings to decline in the exploration, refining and marketing divisions on lower oil price and weak demand, although profits from its natural gas and pipelines business segments should post a growth on the back of strong gas demand and lower import gas losses. The brokerage kept its price target for PetroChina unchanged at HK$8.30, based on an assumption of $70 a barrel for Brent.

-- Carrie Chen

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