Citigroup: PetroChina (00857) outperforms Sinopec (00386) in the second quarter, target price 10 Hong Kong dollars, rated as "buy"

Citigroup released a research report stating that PETROCHINA (00857) net profit in the first quarter of this year increased by 2% year-on-year to 48.3 billion RMB. Exploration and production (E&P) performance in the period was lower than expected, as the oil price decreased by 8.5% year-on-year, below expectations. The refining business did not see a quarterly increase like SINOPEC CORP (00386), as Sinopec purchased crude oil in advance, leading to significant inventory gains. The bank believes that PetroChina, influenced by stable Russian crude oil supply, should perform better and prefers PetroChina over Sinopec; with a target price of 10 Hong Kong dollars and a "buy" rating. In addition, PetroChina's EBIT from natural gas sales grew by 40% year-on-year in the first quarter, becoming a highlight, mainly due to a 3.5% increase in sales volume and a 3% decrease in competitive pipeline gas import costs, offsetting the impact of a 4% decrease in average selling price. The bank predicts that PetroChina's profit in the second quarter will once again outperform Sinopec, as the recent rise in liquefied natural gas prices has boosted the competitiveness of natural gas, along with improvements in exploration and production and the strengthening of the oil business. While mainland China may relax restrictions on the export of refined oil products, the impact on easing domestic refining gross margin pressure for the two oil companies is limited.