PetroChina’s net profit edged up 2% YoY to RMB48.3bn in 1Q26. While all its downstream segments posted rapid earnings growth, it was largely offset by the earnings decline at its upstream segment mainly on decline in realised oil price. We expect the company to see higher earnings QoQ in 2Q26 on much higher upstream profit. We raise our 2026-28 earnings forecasts by 4-6% to reflect the increases in our oil price forecasts and post-results adjustments. Reiterate BUY with target price of its H shares lifted to HK$12.85.

Key Factors for Rating

In 1Q26, PetroChina’s realised oil price dropped 8% YoY to US$64.1/bbl whereas the average price of Brent gained 5% YoY to US$78.4/bbl. The company’s realised oil price traced major international benchmarks with a time lag of 15- 30 days. Hence, the sharp rise in oil price following the Middle East war started in late February did not really reflect its realised oil price in 1Q26. As a result, the operating profit of its upstream segment dropped 12% YoY to RMB41bn.

This was more than offset by the strong growth at all its downstream segments. The operating profit of its refining, chemical and new materials segment surged 54% YoY to RMB8.3bn on higher refining margin and higher sales volume and margins of chemical products. The operating profit of its marketing segment grew 28% YoY to RMB6.5bn on increased domestic sales volume of refined oil products and margin expansion in international trading. The operating profit of its natural gas marketing segment surged 40% YoY to RMB18.9bn on higher sales volume and narrowed loss on imported gas.

We expect PetroChina to see higher earnings in 2Q26 QoQ mainly on the much higher upstream earnings. In particular, we estimate its realised oil price to surge 48% QoQ. This should be partly offset by lower earnings at natural gas marketing segment and refining operations on seasonality and expected decline in refining margin respectively.

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$12.12 to HK$12.85 to reflect the increases in our earnings forecasts. Our target valuation remains 4.8% 2026- 28E average dividend yield.

We also lift our target price for its A shares from RMB14.22 to RMB14.46. We still base our target price its 3-month average A-H premium which has narrowed from 33% to 29% since late March.