20220830-招银国际-联合能源集团-00467.HK-On_track_volume_growth_along_with_good_cost_control_5页_1mb

UEG (467 HK) Company Update Summary

Core Content

UEG (467 HK) is a medium-sized international oil and gas company that has demonstrated strong financial performance in 1H22. The company has maintained its presence in Pakistan despite political changes, leveraging its role as a major taxpayer. UEG's performance has been driven by volume growth and improved cost control, resulting in a 58% YoY increase in net profit.

Key Financial Highlights

• Net Profit (1H22): HK$1.51 bn, up 58% YoY.
• Oil and Gas Sales Value (1H22): US$1.3 bn, up 80% YoY, driven by a 65% increase in realized prices and a 9% increase in sales volume.
• Net Revenue (1H22): HK$5.5 bn, up 59% YoY after excluding government-related charges.
• Dividend Yield (2022E): Expected to reach 8% due to strong operating cash flow (HK$3.1 bn in 1H22).
• Target Price (TP): Revised to HK$1.77 from HK$1.40, based on a 10x 2023E P/E ratio, which is ~30% discount to the historical average.

Earnings Forecast

Revenue and Cost Performance

• Operating Expenses (1H22): Down 4.7% YoY to US$4.1/boe, due to a 14.6% decline in unit cost in MENA, which offset an 8% increase in Pakistan.
• Gross Margin (1H22): Increased by 14.9ppt YoY to 58.4%.
• Daily Output (1H22): Average daily working interest production rose by 9.5% to 100k boed.
• Iraq Block 9 Output (1H22): Achieved a 33% YoY increase to 32.4k boed, expected to grow by 30% annually in 2022E-23E.

Risk Factors

• Crude & Gas Price Fluctuations: Unexpected declines in prices could negatively impact earnings.
• Political Risk in Pakistan: Despite the company's confidence in managing risks, political instability remains a concern.

Valuation

• Current P/E (2022E): 6.6x, close to 1x SD below the historical average of 15x.
• New Target Price (TP): HK$1.77, based on a 10x 2023E P/E ratio.
• Earnings Sensitivity:
  • A 5% increase in Brent oil price results in a 3% increase in annualized net profit.
  • Lower lifting costs in Pakistan and MENA improve net profit significantly.

Balance Sheet and Key Ratios

Shareholding and Stock Data

• Shareholding Structure: Zhang Hong Wei owns 66.44%, with a free float of 33.56%.
• Market Cap: HK$23,135 mn.
• Average 3-Month Trading Volume: HK$29.65 mn.
• 52-Week High/Low: HK$1.32 / HK$0.44.

Share Performance

Analyst Rating

• CMBIGM Rating: BUY, indicating potential return of over 15% over the next 12 months.
• Analyst Certification: The analyst certifies that the views expressed reflect their personal opinion and that there are no conflicts of interest affecting the report's objectivity.

Important Disclosures

• CMBIGM does not provide individually tailored investment advice.
• The report is not an offer or solicitation to buy or sell securities.
• CMBIGM is not a registered broker-dealer in the United States or Singapore, and the report is intended for specific investors only.

Conclusion

UEG is positioned for continued growth, with a strong focus on cost control and the development of key assets like Iraq Block 9. The company's performance in 1H22 reflects its resilience and strategic focus, and the revised target price suggests a positive outlook. However, the report highlights the need for investors to be cautious of potential risks such as oil price volatility and political instability in Pakistan.