PetroChina:Oil gearing,inexpensive and unlocking hidden value

+ve: Significant 2016 gas price cuts unlikely. We side with PetroChina onthis (whereas distributors expect/hope for more cuts) – with Q1 gasconsumption up a very strong 15% y/y and recent oil price rises leaving gas atparity with oil products (and remember gas is significantly cleaner), we seelittle reason for further cuts.

+ve: Asset sales will continue. Gains from the Q4 15 TAP pipeline sale willlikely be booked in Q2, and such sales will continue to be sought, sopotentially cushioning 2016 EPS against still weak oil prices. Such sales alsohelp crystallise up to HK$3.1/sh of value that we think is largely unrecognisedby equity markets.

Neutral: The dividend payout will likely stay at 45%. Although suchstability may seem attractive, in fact it gave substantially worse dividendmomentum for investors in 2015 than that delivered by CNOOC or Sinopec.

GCC takeaways. PetroChina presented to investors at our Greater ChinaConference (‘GCC’) in Hong Kong last week. Key takeaways are that: 1) gasprice cut fears are overdone, 2) asset sales will continue to boost reportedEPS and unlock unrecognised value and, 3) the dividend policy will almostcertainly stay at a 45% payout for 2016. We continue to rate the stock anOutperform.