Financial Analysis - PetroChina

Introduction Importance of PetroChina Company in Economy China’s impressive economic growth has significantly increased its demand for oil and chemicals. It is believed that PetroChina− the largest integrated oil company in China − is well positioned to capitalize on the country’s favorable trends. Currently, the company is expected to outperform the broader U.S. equity market over the next one to three months. Another lucrative growth area for PetroChina is its natural gas business, which is likely to see a boom in the coming years as China moves from coal to natural gas. At present, two-thirds of China's electricity is generated by coal-fired power plants, which emit greenhouse gases that lead to pollution. Moreover, strong growth in China’s middle class and in automobile ownership is expected to fuel consumption of refined petroleum products. Though PetroChina’s downstream operations are primarily located in China’s relatively poor Northern regions, this would be an advantage in the long run. Additionally, China has implemented fuel price reforms, which has allowed PetroChina to sell its petroleum products close to international prices. The reforms have already helped the company to significantly improve its Refining & Chemicals business during the first half of 2014. [1]

Company Profile PetroChina Company Limited (PTR) is the largest integrated oil company in China. The company's activities include: the exploration, development, production and sale of crude oil and natural gas, the refining, transportation, storage and marketing of petroleum products, the manufacture and sale of chemical products, and the transmission of natural gas, crude oil and refined products. PetroChina was established in November 1999 as a part of a restructuring of China National Petroleum Corporation (CNPC), a state-owned entity, which currently holds a majority stake of 86.35% in PetroChina. The company operates in four segments: Exploration & Production, Natural Gas & Pipelines, Refining & Chemicals, and Marketing. Company's Registered Chinese Name: 中国石油天然气股份有限公司 Company's English Name: PetroChina Company Limited Company Secretary: Wu Enlai

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Executive Profile

Products Refined products Diesel, Gasoline, Fuel Oil, Naphtha, Jet fuel, Lubricants, Asphalt, Paraffin. Chemical products Basic petrochemicals

Derivative petrochemicals Polyolefin

Fibers

Ethlene Propylene Benzene

Polyethylene Polypropylene ABS

Terylene fiber Polyacrylic fiber Polypropylene fiber

Other chemicals

Intermediates

Rubber

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Urea Ammonium nitrate

PTA Glacial acetic acid Alkylbenzene Octanol Synthesized ethanol Buty alcohol Purified methenol

Butadiene styrene rubber Polybutadiene rubber Acrylonitrile-butadiene rubber Ethylene-propylene rubber

Services Oil/gas Transportation Service

PetroChina holds and operates an oil and gas product pipeline network and storage system covering 26 provinces, municipalities and autonomous regions across China that are as below: Natural gas pipeline Crude oil pipelines Oil products pipeline Chemical Sales and Technology Center The Company's chemical products are marketed directly or indirectly through a network of sales personnel and agents dedicated to its chemical operations. Currently, the Company has six sales and technical service centres, each responsible for marketing and providing after-sales services in respect of plastics, fibres, rubbers, fertilisers, organic chemical feedstock and catalysts and additives, respectively. Fuel Card PetroChina fuel card system is a gigantic IC card application project with transinstitutional and inter-regional capacity. An electronic product oil retailing system, it aims at providing nationwide refueling convenience to cardholders with better and more satisfying service. [2]

Competitors CNOOC Limited Sinopec Shanghai Petrochemical Company Limited CHEVRON CORPORATION

Credit Rating Credit rating of Petrochina as of 28-Oct-2014 is A+. It is the highest recognized credit rating and this shows that this company has a very strong fundamental strength compared with that of its global peers. [3] 3

Technical Analysis Yea rs 200 6 200 7 200 8 200 9 201 0 201 1 201 2 201 3

RMB in Millions Sales/Rev Net Total enue Profit Assets 505,632 131,699 711,489 595,734

127,683

859,390

771,025

127,702

1,018,107

722,571

99,808

1,202,343

982,797

131,897

1,356,651

1,287,823

126,429

1,543,576

1,337,157

103,429

1,740,634

1,362,289

134,356

1,843,650

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Interpretation In eight years earning history, Sales/Revenue of PetroChina Co. is increasing each year.

DuPont Analysis Years Net Profit Margin Total Assets Turnover Equity Multiplier

2006 26.05 % 71.07 % 1.43

2007 21.43 % 69.32 % 1.37

2008 16.56 % 75.73 % 1.38

2009 13.81 % 60.10 % 1.52

2010 13.42 % 72.44 % 1.56

2011 9.82%

2012 7.73%

2013 9.86%

83.43 % 1.65

76.82 % 1.78

73.89 % 1.74

Return on Equity (ROE)

26.40 %

20.32 %

17.32 %

12.64 %

15.16 %

13.54 %

10.55 %

12.65 %

duPont 30.00% 26.40% 20.32%

20.00% ROE

17.32%

12.64%

15.16% 13.54%

10.00%

10.55% 12.65%

ROE

0.00% 2006

2007

2008

2009

2010

2011

2012

2013

Years

Interpretation As benchmark is not available so trend analysis is done of PetroChaina Company’s Return on Equity (ROE) over 8 years. The trend shows decline in ROE because of drop in net profit margins and an increase in the equity multiplier. Asset turnover has been somewhat consistent.

Future Perception Every year earning is increasing and as of Feb 14, 2015, the consensus forecast amongst 25 polled investment analysts covering PetroChina 5

Company Limited advises investors to hold their position in the company. This has been the consensus forecast since the sentiment of investment analysts deteriorated on Jan 12, 2015. The previous consensus forecast advised that PetroChina Company Limited would outperform the market. [4]

Opportunity The current situation is relatively moderate those who own share(s) should hold and there can be a good opportunity for new investors if PetroChina company outperforms.

Summary This document majorly presents a model for the financial analysis of PetroChina Co. Ltd. based on Technical and DuPont system of financial analysis. PetroChina is the largest integrated oil company in China. It has a significant impact on China's economy due to the increasing demand for oil. PetroChina has A+ credit rating. The company is focusing on increasing its Sales since last eight years, although there is also a decline in 2009 but the company has brought up a remarkable boost in Sales in next four years i.e. from 2010 -2013. PetroChina return on equity is decomposed into net profit margin, total assets turnover and the equity multiplier. The DuPont analysis shows the performance of The PetroChina Co. over the years from 20062013. Beginning with 2006, PetroChina had high return on equity as well as net profit margin as compared to other years under study. As moving forward, after 2006 until 2013, the return on equity is gradually declined except for the years 2010 and 2013 where a little up gradation in ROE is seen. Similarly, net profit margin exhibits regular turn down for the period from 2007 to 2012 except 2013 in which a little growth in profit margin has occurred. Total Assets Turnover is almost stable over eight years apart from 2011 in which a good increment is seen. The equity multiplier also show 6

almost stable indicators over the whole time frame along with a more ups and less downs which indicates that PetroChina had some financial leverage in the recent years, which means the company is relying on debt to finance its assets somehow. Net profit reached approximately 26.05 percent with an average 14.84 percent, total asset turnover of about 83.43 percent and an average of 72.85 percent, and the equity multiplier leveled out at max with the figure 1.78 with average of 1.55. New investors should watch over as the company outshines.

References [1]http://www.zacks.com/stock/news/139654/petrochina-looks-impressiveon-improving-chinese-economy [2] http://www.petrochina.com.cn/ [3] https://www.fitchratings.com/gws/en/esp/issr/82320901 [4] http://markets.ft.com/research/Markets/Tearsheets/Forecasts? s=601857:SHH

Appendix 7

The group: China National Petroleum Corporation The company: PetroChina Company Limited

8 years balance sheets and income statements

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