PetroChina’s earnings grew 2% YoY to RMB46.8bn in 1Q25, beating our forecast by 9%. The real surprise is the operating profit of its upstream segment growing 7% YoY despite realised oil price dropping 7% YoY.

Looking ahead, its earnings will drop QoQ in 2Q25 if oil price stays at the current level after the sharp fall in early April. However, oil price could swing widely with Trump’s fickle attitude towards his tariff war and his attempt to force Iran to a new nuclear deal. We increase our 2025-27 earnings forecasts by 1-2% and reiterate our BUY calls with target price of its H shares slightly raised to HK$8.08.

Key Factors for Rating

In 1Q25, the operating profit of its oil, gas and new energies segment surprisingly rose 7% YoY to RMB46.1bn (10% above our forecast) despite its realised oil price dropping 7% YoY to US$70/bbl. On top of lower windfall tax and resources tax, the company’s lifting cost also dropped 6% YoY to US$9.76/BOE, the lowest ever level, partly on lower unit staff cost. The company also reduced the procurement of services and other costs.

The operating profit of its natural gas marketing segment grew 10% YoY to RMB13.5bn, 12% above our forecast. The company’s domestic gas sales volume grew 4% YoY, beating the 2% YoY drop in apparent demand in China as per the data from NDRC. Despite the 4% YoY drop in realised domestic gas price, the company still managed to post growth through better cost control.

The decent growth of these two segments defied the earnings declines at other segments. The operating profit of its refining and chemicals segment dropped 34% YoY to RMB5.4bn on lower crude oil processing volume and margins. That of its marketing segment dropped 25% YoY to RMB5bn on decline in domestic sales volume of refined oil products and narrowed margin for international trading.

Key Risks for Rating

Sharp fall in oil price.

Significant impairments against its assets.

Valuation

We raise our target price for its H shares slightly from HK$8.06 to HK$8.08. Our target valuation is still 5.5% average dividend yield for 2025-27E. Our target price puts us at 8.4x 2025E P/E.

We also increase our target price for its A shares from RMB10.90 to RMB10.91.

We still base our target price on its 3-month average A-H premium which has narrowed from 45% to 44% since late March.