PetroChina’s earnings grew 14% QoQ to RMB42.3bn in 3Q25, 7% aboveour forecast. The discrepancy mainly came from the better-thanexpectedprofit at its natural gas marketing segment. Looking ahead,we estimate its earnings to drop 29% QoQ in 4Q25 on the expected decline in oil price and the booking of more costs. We increase our 2025-27 earnings forecasts by 2%. We reiterate our BUY calls withtarget price of its H shares raised to HK$8.83.

Key Factors for Rating

The operating profit of its natural gas marketing segment jumped 147% QoQ to RMB12.7bn in 3Q25, 108% above our forecast. The spectacular sequentialgrowth was due to the 3% QoQ growth in sales volume and 2% QoQ increasein average domestic ASP. The company also tried hard to lower its procurementcost and the loss on imported gas narrowed 70% QoQ to RMB290m.

The operating profit of its marketing segment surged 61% QoQ to RMB4.1bn in3Q25, 32% above forecast. The profit of both domestic sales and internationaltrading surged, probably on improvement in unit profit and lower cost.

The performance of the remaining two segments was just mediocre. The oil, gasand new energies segment posted flat operating profit QoQ (RMB39.4bn in3Q25) with the 3% QoQ increase in realised oil price offset by 15% QoQ increase in lifting cost. The operating profit of its refining and chemicals segment slipped 9% QoQ to RMB5.2bn. Its refining operations dragged by 3% QoQ fall inprocessing volume whereas its chemical business saw 6% QoQ fall in output of synthetic resin.

Looking ahead, we expect PetroChina’s earnings to drop 29% QoQ in 4Q25 before any further impairment mainly on lower oil price (expect average price ofBrent to drop 8% QoQ to US$63/bbl). The company also usually books muchhigher costs, including lifting cost and exploration expenses, in 4Q of a year.While its natural gas marketing segment posts much higher earnings in 4Q, it should not be enough to change the big picture.

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$8.59 to HK$8.83 to reflectthe increase in our earnings forecasts and hence dividend forecasts. Our target valuation is still 5% average 2025-27E dividend yield.

We lower our target price for its A shares from RMB10.46 to RMB10.16. We stillset our target price based on its 3-month average A-H premium which has narrowed from 33% to 26% since late August.

Change in Forecasts

We increase our 2025-27 earnings forecasts by 2% on net basis after raising ourforecasts for the natural gas marketing and marketing segments and lowering the forecasts on the other two based on its 3Q25 results.

Possible Upside in Dividend

In 9M25, the company’s free cash flow grew 9% YoY to RMB165.9bn although itsearnings actually dropped 5% YoY. If the company can achieve decent growth infree cashflow for the full-year, it will be able to increase payout ratio. For instance,the company maintains its DPS unchanged in 1H25 despite a 5% YoY drop inearnings. To be conservative, we currently set our payout ratio at about 50% for 2025-27, the lowest level in the past three years.