The net profit of PetroChina dropped 5% YoY to RMB84bn, 11% above our forecast. The profitability of its upstream segment and refining business was above expectation. We forecast its earnings to drop 18% HoH in 2H25 as we see lower oil price given the expected significant oversupply in the global oil market in 4Q25. We increase our 2025-27 earnings forecasts by 4-8% and reiterate our BUY calls with target price of its H shares lifted to HK$8.59.

Key Factors for Rating

The operating profit of its Oil, Gas and New Energies segment dropped 7% YoY to RMB85.7bn in 1H25, 13% above our forecast. The negative impact from the 15% YoY fall in realised oil price (to US$66.2/bbl in) was partly offset by the 8% YoY decline in lifting cost (to US$10.14/BOE). In particular, the segment’s purchasing expenses dropped RMB13.4bn YoY as its investment in green energy projects like photovoltaic and wind power enabled it to cut down the purchase of power from the grid.

The operating profit of its refining operations dropped 8% YoY to RMB9.7bn in 1H25, 31% above our forecast. Its cost reduced on lower DD&A expenses.

The operating profit of its natural gas marketing segment grew 11% YoY to RMB18.6bn in 1H25, 14% below our forecast. The company’s domestic gas sales grew 4.2% YoY, well above the 0.9% YoY fall in apparent national demand. The loss on imported gas also narrowed 30% YoY to RMB2.8bn.

The operating profit of its chemicals operations dropped 55% YoY to RMB1.4bn on lower margin whereas that of its marketing segment fell 25% YoY to RMB7.6bn on lower profit from international trading.

We expect the company’s profit to drop 18% HoH in 2H25 as we expect the average price of Brent to drop 8% HoH on excess supply. This will inevitably hit the earnings of its upstream business.

Key Risks for Rating

Sharp fall in oil price.

Higher-than-expected costs.

Valuation

We raise our target price for its H shares from HK$8.13 to HK$8.59 to reflect the increases in our earnings forecasts and hence dividend forecasts. Our target valuation is still average 2025-27E dividend yield of 5%.

We also increase the target price for its A shares from RMB10.08 to RMB10.46.

We still base our target price on its 3-month average A-H premium, which has expanded from 35% to 33% since mid-August.