PetroChina stock (
PTR
,
quote
) had one of history's worst-performing IPOs in 2007. Five years
later China's largest oil producer may be bottoming out.
[caption id="attachment_67942" align="alignright" width="300"
caption="PetroChina station in Xinjiang, China with the name
written in English, Chinese, and Uyghur"]
[/caption]
PetroChina stock rocketed to ￥48.6 shortly after its
initial public offering in 2007. It recently hit a record low of
￥9. Does that mean it's finally time to buy?
Maybe.
Heavy investment by the company in offshore drilling and
pipelines should start to pay off over the next few years, says
Jingpu Guo, an analyst at Hong Kong-based Cinda Securities, and the
company pays a healthy dividend yield above 3.5%. Those two factors
give PetroChina stock a potential upside of more than 50% he says,
putting the top of his target range at ¥13.
"Once the company passes this phase, its cash flows will recover
to a better level, its valuation and profitability will be much
better," says Guo.
PetroChina stock was a victim of horrible timing more than
company blunders or mismanagement. The Shanghai Composite stock
index peaked around 6,000 in the heady year when PetroChina went
public. The index's current value is about 2,100. So PetroChina is
an underperfomer, but not by that much.
The most promising development for PetroChina stock is the
company winning two tenders for offshore drilling earlier this
year, breaking the monopoly of China National Offshore Oil
Corporation (
CEO
,
quote
). CNOOC shares have performed twice as well as PetroChina's over
the past three years.
Aside from securing the two blocks off the coast of China,
PetroChina has signed a series of agreements with foreign countries
including Indonesia and Cuba to explore undersea resources. The
company recently established six subsidiaries for offshore drilling
and transportation.
PetroChina stock may also benefit as the company finishes
several capital-intensive gas and oil pipeline projects in northern
and south-western China. Pipelines generally involve heavy costs up
front, then pay back steadily over decades.
The stock could also get a boost from the company's expansion
into the financial sector, which started with its 2009 acquisition
of Bank of Kunlun. Having its own bank spells lower financing costs
for PetroChina compared to Chinese energy competitors. And Kunlun
has benefited from its parent company's broad networks and
reputation as a state-owned giant. The bank's net profit jumped 79%
to ￥1.2 billion ($188 million) last year, and its asset
base jumped by more than half to ￥130 billion ($20.4
billion).
The global market downturn of the past few months has been
particularly punishing for emerging-market oil companies.
PetroChina stock has lost 17% of its value since March 1, about the
same as Russian national champion Rosneft (
RNFTF
,
quote
), but much better than the train wreck at Brazil's Petrobras (
PBR
,
quote
), which has slid by 35%.
If global oil prices (
USO
,
quote
) continue to firm as they have over the past few weeks, Petrochina
stock could finally get a break, or better yet -- a bounce.
