Insights Bullish Near Term Outlook

Regional Industry Focus
Regional Oil and Gas

Refer to important disclosures at the end of this report
DBS Group Research . Equity 6 Sep 2018
Bullish near-term outlook

STI : 3,156.28
• We revise up our oil price forecast for 2019 as impact
of Iran sanctions on global oil supply could be bigger
HSI : 27,243.85
than earlier anticipated
JCI : 5,683.50
Analyst
• Demand-side concerns overshadowed for now Suvro Sarkar +65 81893144
suvro@dbs.com
• Maintain Overweight stance on sector; earnings and TP
revised upwards for upstream/integrated oil plays Pei Hwa HO +65 6682 3714
peihwa@dbs.com
Oil price to remain elevated in near term. Bullishness William Simadiputra +62 2130034939
seems to be coming back to the oil market, as we move william.simadiputra@id.dbsvickers.com
closer to the imposition of renewed US sanctions on Iran
Nantika WIANGPHOEM +662-857 7836
from November 2018. We believe the market may not be nantikaw@th.dbs.com
fully factoring in the impact of these sanctions, as it is
difficult to ascertain how much of the 2.5mmbpd or so of Singapore Research Team
exports from Iran will be affected. What is becoming more equityresearch@dbs.com
apparent though is that the rest of the OPEC cartel may
not have enough spare capacity to ramp up sufficiently to
fully offset the losses from Iran. We thus believe that the
supply side will continue to remain fundamentally tight in
the coming months, and lead to higher oil prices in the STOCKS
rest of 2018 and 2019. We are revising up our average 12-mth
Target Performance
Brent crude oil forecasts for 2019 to US$75-80/bbl (from Price Mkt Cap Price (%)
US$65-70/bbl earlier). The 2018 average will likely be LCY US$m HK$ 3 mth 12 mth Rating
closer to the higher end of our existing US$70-75/bbl CNOOC 13.42 76,485 16.50 (1.8) 42.8 BUY
forecast, as we anticipate oil prices to stay elevated in PetroChina 5.66 15,244 8.20 (13.7) 12.1 BUY
4Q18. Sinopec 7.44 24,231 9.30 (1.5) 23.4 BUY
Medco Energi 760 903 1,530 (32.4) (6.5) BUY
US shale oil growth is a moderating influence, but Bangchak 36.25 1,523 39.00 2.1 (5.2) BUY
inventory drawdowns will continue. US oil production is Hibiscus Petroleum 0.99 377 1.46 6.5 134.5 BUY
up to around 11.0mmbpd currently, and YTD 2018 Sembcorp Marine 1.68 2,550 2.50 (19.2) 6.7 BUY
average of 10.7mmbpd is about 1.2mmbpd higher than Sembcorp Industries 2.75 3,571 3.90 (7.1) (6.1) BUY
the 2017 average. Pipeline bottlenecks in the Permian Keppel Corp 6.44 8,484 9.00 (15.5) 2.7 BUY
region should ease by 2H19, and US production is likely to Source: DBS Bank, DBSVI, AllianceDBS, Bloomberg Finance L.P.
grow by close to 1.0mmbpd again in 2019. This will Closing price as of 5 Sep 2018
hopefully ensure that there will be no supply-side shocks in
the system, but global inventories will continue to be Summary of earnings and TP revisions for upstream picks
drawn down further and support oil price momentum. Company FY19 Net Profit Target Price
% chg Old New % upside
Sector picks. We have raised our earnings forecasts and TP
for E&P companies (refer to table on the right) factoring
CNOOC +19% HKD 16.00 HKD 16.50 +23%
the upwards revisions in oil price assumptions. Upstream
Petrochina +14% HKD 8.00 HKD 8.20 +45%
players with greater sensitivity to oil prices - CNOOC,
Sinopec +1% HKD 9.30 HKD 9.30 +25%
Petrochina and Medco, remain the preferred proxies to
Medco +4% Rp1,500 Rp1,530 +101%
ride on higher oil prices as broad market sentiment
PTTEP +18% Bt132 Bt135 -3%
improves. Meanwhile, Sinopec should continue to
outperform on the back of earnings resiliency, lucrative Source: DBS Bank, DBSVI, DBSV TH
dividend yield (8-9%) and potential IPO of marketing arm.
ed: TH / sa:YM, PY, CS

Page 1
Oil & Gas
Bullishness seems to be returning to the oil market. Oil higher than the 1.2mmbbls reduction we saw in the last
markets had cooled down to an extent in the latter part of round of sanctions. China, the largest importer of Iranian oil
July and August, but bullishness seems to be returning to the with around 35% share currently, will likely find ways to skirt
market as fears of demand disruption from trade wars are around the sanctions, but other countries, including India, will
being replaced by fears of supply shortages once the Iran likely have to reduce exposure, though discussions are
sanctions kick in later in November. We believe the market ongoing to secure some waivers from the US. In any case,
may still not be fully factoring in the impact of these volatility will continue in the near term given the uncertainties
sanctions, as it is difficult to ascertain how much of the and oil prices could test levels even above US$80/bbl in the
2.5mmbpd or so of exports from Iran will be affected, come near term, in our view.
end-2018 and 2019. What is becoming more apparent
though is that the rest of the OPEC cartel may not have Thus, we revise up our oil price forecasts. Brent crude oil
enough spare capacity to ramp up sufficiently to fully offset prices have averaged around US$72/bbl YTD in 2018, and as
the losses from Iran, which is compounded by the fact that we move closer to the imposition of renewed US sanctions on
Venezuelan production continues to fall and unplanned Iran from November 2018, we believe that the supply side will
outages could be expected from the likes of Libya, Nigeria and continue to remain fundamentally tight in the coming
Angola. months, and support higher oil prices in the rest of 2018 and
2019. We are revising up our average Brent crude oil forecasts
Demand-side concerns likely to be overshadowed for now. for 2019 to US$75-80/bbl (from US$65-70/bbl earlier) and
Escalating trade tensions between the US and China have led also introduce 2020 average Brent crude oil forecast of
to concerns about slower economic growth globally, and US$70-75/bbl. 2018 average Brent crude oil price will likely be
export growth and manufacturing sentiment in China and the closer to the higher end of our existing US$70-75/bbl forecast,
rest of the region related to the supply chain are showing as we expect oil prices to stay elevated in 4Q18. The key
some signs of softening. However, we do not believe there forces preventing further upside is demand destruction in oil
will be a material demand shock in the offing. Instead, the importing countries if oil prices rally too high, and increasing
focus in the near term would be how much Iranian exports US shale supplies.
would be affected by the sanctions and whether it would be
Oil price trends
US$ per bbl

Brent hit a high of
140 US$115/bbl on 19-J un-14
before collapsing
120
Brent staged a smart recovery
since 2H17 and is hovering above
100 US$75/bbl levels currently
80
60
DBS forecast for Brent:

40
2018 average – US$70-75/bbl
2019 average – US$75-80/bbl
20 2020 average – US$70-75/bbl
0
Jan-11
Jan-12
Jan-13
Jan-14
Jan-09
Jan-10
Jan-15
Jan-16
Jan-17
Jan-18
Jul-11
Jul-13
Jul-14
Jul-15
Jul-16
Jul-09
Jul-10
Jul-12
Jul-17
Jul-18
Source: Bloomberg Finance L.P., DBS Bank Brent WTI
Page 2
Oil & Gas
OPEC production trends do not seem to be a big game In the two months since the agreement to boost production,
changer, even after relaxation of production quotas. To recap, Saudi Arabia has upped supplies by about 0.7mmbpd, and
OPEC and its key partner nations including Russia had agreed other Gulf countries have also increased production by close
in the last general meeting in Vienna in June 2018 that they to 0.3mmbpd, but overall OPEC increase is lower at less than
would look to boost supplies by close to 1mmbbpd to offset 0.5mmbbls, as Venezuela production is still in decline mode,
the losses from Venezuela and lend stability to the oil market. and disruptions continue in countries like Libya and Angola.
OPEC production levels have started to move up again but may not be enough to offset Iran losses, going forward
mmbpd
34
33
32
31
30
29
28
27
26
25
Apr-14
Apr-16
Apr-17
Apr-18
Apr-15
Jul-15
Jul-16
Jul-17
Jul-18
Jul-14
Jan-14
Jan-16
Jan-17
Jan-18
Jan-15
Oct-15
Oct-16
Oct-17
Oct-14
Source: Bloomberg Finance L.P., DBS Bank
Production change of select OPEC members from May to July 2018
kbpd
800
680
600
470
400 290
160
200
-
Saudi Iran Libya Angola Nigeria Venezuela Others Total
Arabia (70)
(200) (130) (130)
(400) (330)
Page 3
Oil & Gas
OPEC spare capacity is tight. OPEC spare capacity is set to and soon, Iran. Spare capacity is only expected to decline
decline to levels below 2.0mmbbls in 2018 and end the year further in 2019. Historically, OPEC spare capacity levels below
at around 1.5mmbbls, according to EIA data and forecasts, 2.0-2.5mmbbls represent very tight market conditions, not
factoring in the expected production ramp-up in Saudi Arabia, desirable in terms of market stability, as any further
UAE, Kuwait and others to offset the declines from Venezuela unplanned outages could cause supply shocks.
OPEC spare capacity trends and forecast

mmbpd
6
0
1Q 2001
3Q 2002
2Q 2003
1Q 2004
4Q 2004
3Q 2005
2Q 2006
4Q 2007
2Q 2009
1Q 2010
4Q 2010
3Q 2011
2Q 2012
1Q 2013
3Q 2014
1Q 2016
3Q 2017
2Q 2018
1Q 2019
4Q 2019
4Q 2001
1Q 2007
3Q 2008
4Q 2013
2Q 2015
4Q 2016
Source: US Energy Information Administration (EIA), DBS Bank
Meanwhile, Iran export shock looms in November. To recap, cargoes and using Iranian tankers to import oil, enjoying
Iran oil production had previously been affected in 2013-2015 almost free shipping and extended credit periods, similar to
owing to the imposition of sanctions related to Iran’s nuclear the Chinese strategy. But it remains to be seen if India can
activities, and had declined to 2.7mmbpd. Since the lifting of continue to withstand US pressure for too long. Taking all
sanctions in January 2016 however, production recovered these factors into account, we believe Iranian exports and
sharply and in 2017, Iran produced close to 4.7mmbpd of production will likely fall by between 1-1.5mmbpd after US
liquids, of which 3.8mmbpd was crude and the remainder sanctions kick in. Even this decline will ensure a very tight
condensate and hydrocarbon gas liquids. Exports increased in market and further drawdown of inventories worldwide.
tandem to reach 2.5mmbpd in 2017, but that again looks to
be under threat with the US administration set to renew Iran crude oil and condensate exports by destination (2017)
sanctions on Iran from November 2018.
Others
18% China
How much of a shock is the question. Chinese and Indian 24%
imports of Iranian oil will hold the key as they accounted for
roughly 43% of Iranian exports in 2017, with South Korea,
France
Japan and Turkey also taking substantial volumes. While other 5%
countries have either started reducing volumes of Iranian
exports already or trying to secure waivers from the US, China Italy
has opposed the unilateral sanctions and increased purchases 7%
of Iranian oil, now accounting for almost 35% of all Iranian oil J apan India
exports in July 2018, according to ship-tracking data compiled 5% 18%
by Bloomberg. Other countries including key US allies like
Turkey South
South Korea and Japan have not been very successful in 9% Korea
securing waivers from the US and imports of Iranian oil look 14%
likely to be halted soon. India, however, is still taking Iranian Source: US Energy Information Administration (EIA)
Page 4
Oil & Gas
US inventory drawdowns will continue to support oil price globally tight supply conditions, further declines should be
momentum. US crude inventory levels stood at 405mmbbls at expected in coming months. The US is also offering 11mmbbls
the end of August 2018, and inventories continue to show of oil for sale from its Strategic Petroleum Reserve for delivery
better-than-expected seasonal trends in 2018. Stocks are now between 1 October and 30 November 2018, ahead of the
at the lowest level since July 2015 (just a few months after the sanctions on Iran, as it seeks to restrain energy prices before
glut in US shale supply had caused an oil price crisis), and as the crucial midterm elections in the US.
we go into a seasonally high-demand period combined with
US crude oil inventory levels have been declining sharply since 2H17
mmbbls
600
550
500
450
400
350
300
250
200
Jan-2013
Jan-2014
Apr-2014
Jan-2015
Apr-2015
Jan-2016
Jan-2017
Apr-2017
Jan-2018
Apr-2018
Apr-2013
Jul-2014
Jul-2015
Apr-2016
Jul-2017
Jul-2018
Jul-2013
Jul-2016
Oct-2014
Oct-2015
Oct-2017
Oct-2013
Oct-2016
US Crude Oil Inventories (mmbbls)
OECD inventory levels show a similar trajectory. According to fall in the last 11 months. OECD stocks were 32mmbbls below
latest estimates by the International Energy Agency (IEA) in its the 5-year average, according to the data. At 59 days’
latest Oil Market Report (OMR), OECD commercial stocks fell forward demand coverage, this does not leave much room for
by 7mmbbls m-o-m in June 2018 to 2,823mmbbls, the eighth comfort, and underpins upside risk to oil prices.
OECD crude oil stocks are below 5-year average

mmbbls
3200
3000
2800
2600
2400
2200
2000
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Sep-14
Sep-15
Sep-16
Sep-17
May-14
May-15
May-16
May-17
May-18
Jul-14
Nov-14
Jul-15
Nov-15
Jul-16
Nov-16
Jul-17
Nov-17
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Page 5
Oil & Gas
US shale oil growth should hopefully safeguard against supply bottlenecks should, however, ease by 2H19 in our view, and
shocks. US oil production is up to around 11.0mmbpd US production is likely to grow by close to 1.0mmbpd again in
currently, and 2018 YTD average of 10.7mmbpd is about 2019. This will hopefully ensure that there will be no supply-
1.2mmbpd higher than the 2017 average. US onshore rig side shocks in the system, as even that would not be good for
count has increased from 911 at the start of the year to the oil market owing to the associated demand destruction
around 1,037 rigs currently, and optimism continues despite that high oil prices would cause in most countries.
the pipeline constraints in the Permian region. Pipeline
US crude oil production continues to run on full steam YTD in 2018
mmbpd
11.5
11.0
10.5
10.0
9.5
9.0
8.5
8.0
7.5
7.0
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Jul-14
Jul-16
Jul-17
Jul-18
Jan-14
Jan-15
Jul-15
Jan-17
Jan-18
Jan-16
Oct-14
Oct-16
Oct-17
Oct-15
US rig count on a steady pullback again YTD in 2018
2500 60
40
2000 20
0
1500
-20
-40
1000
-60
500 -80
-100
0 -120
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-15
Jan-16
Jan-17
Jan-18
Jan-13
Jan-14
Land Offshore w-o-w chg
Source: Baker Hughes, DBS Bank
Page 6
Oil & Gas
Valuation and Stock Picks

Summary of earnings and TP revisions for upstream picks
Company FY19F Net Profit (US$ m) Target Price
Old New Chg Old New % upside
CNOOC 8,211 9,743 +19% HKD 16.00 HKD 16.50 +23%

Petrochina 8,878 10,104 +14% HKD 8.00 HKD 8.20 +45%
Sinopec 12,303 12,474 +1% HKD 9.30 HKD 9.30 +25%
Medco 220 228 +4% Rp1,500 Rp1,530 +101%
PTTEP 1,223 1,438 +18% Bt132 Bt135 -3%
Source: DBS Bank
Investment summary of top picks

Stock Picks Investment Thesis
Rec, TP (% upside)
CNOOC • Best proxy to ride oil price as a pure offshore upstream play (80% crude oil; 20% natural gas)
BUY, HK$16.50 (+23%) • Staying ahead of peers with world class cost control; all-in cost further reduced to ~US$32/bbl in
2Q18
• Higher oil price and capex translating into potential reserve and production increase
Petrochina • Undervalued upstream proxy with E&P accounting for c.60% of valuation
BUY; HK$8.20 (+45%) • Prime beneficiary of ongoing natural gas reform towards market-based pricing that should better
reflect cost and reduce imported gas losses
• Clarity on pipeline nationalisation and favourable sector policies to enhance energy security are re-
rating catalysts
Sinopec • Better earnings resiliency having a good mix of upstream and downstream assets
BUY, HK$9.30 (+25%) • Lucrative dividend yield of 8-9%, backed by strong cash flow generation and solid balance sheet
• Potential IPO of marketing arm unlocks value, potentially lifting valuation by up to 10%
Medco Energi • Beneficiaries of positive oil price outlook - earnings revised up by 4% for FY18/19 on higher oil ASP
BUY, Rp1,530(+101%) • MEDC committed to keep its lifting cash cost per barrel of oil equivalent low at US$10/BOE until
2020 - maximising profitability performance
• Further earnings upside from its steady power business under Medco Power Indonesia
BCP • Well-diversified sources of revenue with attractive valuation and decent dividend yield
BUY, Bt39 (+7%) • Strong earnings growth is expected in 2019 due to lower maintenance period with near-term
catalyst from IPO of its subsidiary in 2H18
• Upside from the recent acquisition of E&P business (tentatively to be concluded in 4Q18)
Source: DBS Bank, DBSVI, DBSV TH
Page 7
Oil & Gas
Peer comparisons
EV/Sales Revenue P/E EV/EBITDA P/B ROE (%) Net D/E

Market cap
Company (US$m) FY18F FY19F FY18F FY19F FY18F FY19F Current FY18 FY19 Current
Upstream peers:
CNOOC Ltd 76,332 2.2x 2.2x 9.3x 8.7x 3.7x 3.6x 1.3x 13.9% 13.6% 0.08x
ConocoPhillips 85,333 2.5x 2.5x 16.4x 14.5x 6.2x 6.0x 2.7x 15.5% 17.0% 0.37x
ONGC 31,809 1.0x 1.0x 7.1x 6.9x 4.5x 4.3x 1.1x 13.6% 12.9% 0.42x
Woodside Petroleum 24,476 5.8x 5.2x 15.9x 13.2x 7.3x 6.4x 1.4x 8.6% 10.5% 0.30x
Inpex 15,523 2.6x 2.2x 25.1x 12.1x 4.6x 3.7x 0.6x 2.4% 4.7% 0.13x
PTTEP 17,259 3.1x 2.9x 13.4x 12.2x 4.3x 3.9x 1.6x 10.7% 11.2% CASH
Medco 998 2.7x 2.5x 7.2x 5.6x 5.2x 4.9x 0.7x 9.3% 10.6% 1.42x
2.8x 2.6x 13.5x 10.5x 5.1x 4.7x 1.3x 10.6% 11.5% 0.45x
2.6x 2.5x 13.4x 12.1x 4.6x 4.3x 1.3x 10.7% 11.2% 0.34x
Integrateds:
Sinopec 121,498 0.3x 0.3x 9.7x 9.7x 3.9x 3.8x 1.1x 10.8% 10.5% CASH
Petrochina 210,928 0.8x 0.8x 15.1x 13.4x 5.4x 5.2x 0.7x 4.9% 5.5% 0.24x
Shell 280,294 0.9x 0.9x 11.9x 10.2x 5.6x 5.2x 1.4x 11.6% 12.6% 0.33x
ExxonMobil 339,425 1.2x 1.2x 17.2x 14.6x 7.8x 6.8x 1.8x 9.9% 11.2% 0.20x
BP 142,068 0.6x 0.6x 12.8x 11.5x 5.0x 4.6x 1.4x 10.6% 11.6% 0.37x
Chevron 226,987 1.5x 1.4x 14.8x 13.4x 6.1x 5.6x 1.5x 9.7% 10.4% 0.23x
Total 166,728 0.9x 0.9x 11.4x 10.3x 4.8x 4.4x 1.4x 11.8% 11.6% 0.12x
0.9x 0.9x 13.3x 11.9x 5.5x 5.1x 1.3x 9.9% 10.5% 0.25x
0.9x 0.9x 12.8x 11.5x 5.4x 5.2x 1.4x 10.6% 11.2% 0.23x
All comparables average 1.9x 1.7x 13.4x 11.2x 5.3x 4.9x 1.3x 10.3% 11.0% 0.35x
Page 8
China / Hong Kong Company Guide
CNOOC Ltd
Version 10 | Bloomberg: 883 HK EQUITY | Reuters: 0883.HK
BUY Leveraged to higher oil prices

Last Traded Price ( 5 Sep 2018):HK$13.42(HSI : 27,244)
Price Target 12-mth:HK$16.50 (23.0% upside) (Prev HK$16.00) Reiterate BUY with higher TP of HK$ 16.50, following higher oil
price assumption for 2019-2020. As a pure E&P play, we
Analyst
continue to like CNOOC as a proxy to higher oil prices. The
Pei Hwa HO+65 6682 3714, peihwa@dbs.com
stronger than expected core profit and impressive cost
reduction in 1H18 illustrates CNOOC’s world-class execution
What’s New and cost control capabilities. Dividend yield remains attractive at
• FY19F earnings raised by 19% as we increased 5%, as we see potentially higher DPS in 2018 given higher
2019 realised oil price assumption by US$7/bbl to earnings and operating cashflows. Finally, guidance for capex to
US$73/bbl rise c.50% y-o-y in 2018 looks positive for reserve life.
• Best proxy to oil price as a pure E&P company
• Higher oil price leads to capex expansion and Focus on value over volume is positive for ROE and valuation.
reserve growth CNOOC’s sharpened focus on tapping lower-cost resources and
its first-in-class cost reductions vs. peers (since the onset of the
• Reiterate BUY; TP lifted to HK$16.50
2014 oil crisis) could reverse the 20-year secular downtrend on
ROEs as ‘lower-hanging fruit’ resources have already been
Price Relative
HK$ Relative Index
exploited. Together with a recovery in oil prices, these should
206
drive up ROEs and re-rate its valuation multiples.
15.8
186
13.8
166
11.8
146 Where we differ: We believe the market has yet to fully
9.8
126
106
appreciate the more positive oil price outlook as well as
7.8
86 CNOOC’s revised reserve life, which now looks healthier at 10.3
66
5.8 46 years post booking of Liza Phase I and Libra reserves as well as
Sep-14 Sep-15 Sep-16 Sep-17 Sep-18
re-booking of Long Lake reserves on a better cost outlook there.
Additionally, management had previously implied that CNOOC’s
CNOOC Ltd (LHS) Relative HSI (RHS)
Forecasts and Valuation proven reserve life could be understated by ~40% under SEC
FY Dec (RMBm) 2016A 2017A 2018F 2019F
Turnover 146,490 186,390 229,749 252,694 reporting standards as opposed to the seemingly more
EBITDA 68,977 102,005 137,458 154,676 comprehensive Society of Petroleum Engineers (SPE) reporting.
Pre-tax Profit (5,275) 36,357 72,221 88,009
Net Profit 637 24,677 54,165 66,007 Valuation:
Net Profit Gth (Pre-ex) (%) (96.9) 3,773.9 119.5 21.9
EPS (RMB) 0.01 0.55 1.21 1.48 We value CNOOC based on DCF (WACC 10%; terminal growth
EPS (HK$) 0.02 0.63 1.39 1.70 1%; long-term oil price assumption of US$68/bbl), to derive our
EPS Gth (%) (96.9) 3,773.9 119.5 21.9 HK$16.50 TP.
Diluted EPS (HK$) 0.02 0.63 1.39 1.70
DPS (HK$) 0.35 0.47 0.67 0.71 Key Risks to Our View:
BV Per Share (HK$) 9.82 9.76 10.48 11.47
PE (X) 820.2 21.2 9.6 7.9 Oil price volatility is the key risk. CNOOC’s earnings are
P/Cash Flow (X) 7.2 5.5 4.3 4.0 sensitive to oil prices, which are likely to be dictated by OPEC’s
P/Free CF (X) 21.9 11.7 11.2 8.1
EV/EBITDA (X) 9.3 6.1 4.5 3.9 and the US’s output in the near term.
Net Div Yield (%) 2.6 3.5 5.0 5.3
P/Book Value (X) 1.4 1.4 1.3 1.2
Net Debt/Equity (X) 0.3 0.3 0.2 0.2 At A Glance
ROAE(%) 0.2 6.5 13.7 15.4 Issued Capital (m shrs) 2,778
Earnings Rev (%): Nil 19 Mkt Cap (HK$m/US$m) 17,139 / 2,184
Consensus EPS (RMB) 0.60 0.63 0.62 Major Shareholders (%)
Other Broker Recs: B:18 S:0 H:3 Orchid Garden Investment Co., Ltd. 36.7
Source of all data on this page: Company, DBS Bank (Hong Kong) Li (Hairong) 20.3
Limited (“DBS HK”), Thomson Reuters, HKEX Greenwoods Asset Management Limited 5.3
Free Float (%) 37.7
3m Avg. Daily Val. (US$m) 11.2
ICB Industry: Financials / Real Estate Investment & Services
ed-JS/ sa- CS /AH Page 9

Company Guide
CNOOC Ltd
CRITICAL FACTORS TO WATCH Realized oil price (US$/bbl)

72.8
73.5
67.7
Critical Factors 63.0
Riding on oil price recovery. CNOOC is engaged in the 52.5
51.3 52.7
exploration and production of crude oil and natural gas, 42.0

41.4
primarily within offshore China, with exclusive rights to engage

31.5
in oil and gas exploration in offshore China. CNOOC is the best
21.0
Chinese proxy to oil prices. Every US$1 per barrel (bbl) increase
10.5
in Brent crude oil price from our base case of US$70/bbl could
0.0
lift 2018 earnings by 2.2%; while every US$1/bbl increase in 2015A 2016A 2017A 2018F 2019F
long-term oil price from our current assumption of US$68/bbl Realized gas price (US$/mcf)
could raise our TP by about 50 HKcents or 3.1%. 7.0
7.14
6.4 6.5
5.8
Reserve life has increased; further upward revisions would be 5.71 5.5
positive. We had previously stated that the market had over-

4.28
penalised CNOOC for its declining reserves life, as Final
Investment Decisions (FID) made on mega-projects would boost 2.86
reserves. Indeed in 4Q17 CNOOC announced an increase in its

1.43
reserve life from 8.1 years to 10.3 years owing to a booking of
reserves from Liza Phase I and Libra (projects that received FID) 0.00
2015A 2016A 2017A 2018F 2019F
as well as re-booking of reserves from the Long Lake oil sands
Oil production (mmbbls)
project as costs have declined substantially there. Further
boosts to reserves (from FIDs, M&A, exploration) would support 419 410.3
396.4 388.7 390.9
405.0
CNOOC’s share price, in our opinion.

335
Lower all-in cost drives ROE improvement. CNOOC’s sharpened 251
focus on tapping lower-cost resources and its first-in-class cost 167

reductions vs. peers (since the onset of the 2014 oil crisis) could
reverse the 20-year secular downtrend on ROEs as ‘lower- 84
hanging fruit’ resources have already been exploited. Together 0

with a recovery in oil prices, these should drive up ROEs and re- 2015A 2016A 2017A 2018F 2019F
rate its valuation multiples. Gas production (bcf)
519 527
532 498
Accretive M&A provides further uplift. With organic growth 467 475
expected to remain flattish, acquisitions of overseas assets 426
could be a key growth driver. We believe management should 319

proactively explore acquisition opportunities, taking advantage
213
of the relatively benign oil price environment. With a focus on
“profitability-oriented production volume”, reasonable 106
valuations, low cost of production, and solid operational

0
execution remain paramount to avoid a repeat disappointment 2015A 2016A 2017A 2018F 2019F
as in the Nexen case (where oil production levels were lower
Source: Company, DBS HK
than desired, and operational issues such as ruptured pipelines
have also plagued the company).
Page 10
Company Guide
CNOOC Ltd
Appendix 1: A look at CNOOC Ltd's listed history – what drives its share price?
Share price is highly correlated to oil prices, as CNOOC is a pure upstream player
(HK$/sh) (US$/bbl)
25 160
140
20
120
r = 0.89
15 100
80
10 60
40
5
20
0 0
Nov-07
Nov-09
Nov-11
Nov-13
Nov-15
Nov-17
Nov-01
Nov-03
Nov-05
Jul-02
Jul-04
Jul-06
Jul-08
Jul-10
Jul-12
Jul-14
Jul-16
Jul-18
Mar-01
Mar-03
Mar-05
Mar-07
Mar-09
Mar-11
Mar-13
Mar-15
Mar-17
Share Px Brent
Source: Bloomberg Finance L.P.
Profits, crude oil price, and CNOOC’s share price are closely correlated
(RMB bn) CNO OC operating profit vs. Brent price (US$/bbl) (HK$/sh) CNO OC operating profit vs. share price (RMB bn)
60,000 160 25 60,000
50,000 140 50,000
20
40,000 120 40,000
30,000 100 30,000
15
20,000 80 20,000
10,000 60 10 10,000
0 40 0
5
(10,000) 20 (10,000)
(20,000) 0 0 (20,000)
May-10
May-15
Nov-02
May-05
Nov-12
Nov-17
Nov-07
Jul-04
Jul-09
Jul-14
Jan-02
Mar-06
Jan-07
Mar-11
Jan-17
Mar-01
Sep-08
Jan-12
Sep-13
Sep-03
Mar-16
Jun-03
Jun-06
Jun-09
Jun-12
Jun-15
Dec-16
Jun-18
Dec-01
Dec-04
Dec-07
Dec-10
Dec-13
Mar-01
Mar-04
Mar-07
Mar-10
Mar-13
Mar-16
Sep-02
Sep-05
Sep-08
Sep-11
Sep-14
Sep-17
Op Profit Brent Op Profit Share Px
Page 11
Company Guide
CNOOC Ltd
Balance Sheet:
Balance sheet could de-leverage, but there is headroom for Leverage & Asset Turnover (x)
M&As. Net gearing declined modestly y-o-y from 0.27x as of 0.4
0.50 0.4
end December 2017 to 0.24x by end-June 2018, and we 0.4
believe this trend will persist over the next two years. CNOOC 0.40 0.3
should be able to rake in stronger operating cash flows of 0.30

0.3
0.3
c.RMB120bn per year going forward, while capex is unlikely to 0.3
0.20
hit previous peak levels of about RMB90-110bn per year given 0.3
that CNOOC is now more cautious in allocating capital. Thus, 0.10 0.2
0.2
we expect excess cash to be deployed to pay down maturing 0.00 0.2
notes of c.RMB17bn from 2017-2020. Alternatively, excess 2015A 2016A 2017A 2018F 2019F
cash could be deployed to M&As if there are attractive targets Gross Debt to Equity (LHS) Asset Turnover (RHS)
Capital Expenditure
and/or higher dividend payouts. RMBm
80,000.0
Higher dividend payout with stronger operating cash flows. 70,000.0

60,000.0
While CNOOC does not have an explicit dividend policy in
50,000.0
terms of payout ratio or nominal payout per share, we find that 40,000.0
full-year dividend per share (DPS) has displayed strong 30,000.0
correlation to CNOOC’s operating cash flow (OCF) per share, 20,000.0
with a c.90% correlation coefficient (whereas DPS correlation 10,000.0

0.0
with EPS is lower at 66%). Thus, with OCF expected to increase 2015A 2016A 2017A 2018F 2019F
c.25% in FY18 on higher oil prices, we assume that DPS in Capital Expenditure (-)
FY18 will rise by a similar amount. ROE
14.0%
Share Price Drivers:
12.0%
Higher oil prices. CNOOC is among the best Chinese proxies to
10.0%
oil and gas prices. Empirically, CNOOC’s share price
8.0%
performance is 90% correlated to oil prices. We believe the
6.0%
continued recovery in oil prices will drive its share price closer
4.0%
to our TP.
2.0%
0.0%
Key Risks: 2015A 2016A 2017A 2018F 2019F
Lower-than-expected oil prices are the key risk. The most Forward PE Band
apparent near-term candidates for such a scenario would be a (x)
surge in US shale output, and/or the OPEC deal to curb
441.1
production levels falling apart. Upside risk would arise from
the reverse – if oil prices rise above expected levels. 341.1
241.1
Company Background
141.1
+2sd: 129.7x
CNOOC is engaged in the exploration and production of +1sd: 80.9x
crude oil and natural gas, primarily within offshore China, 41.1 Avg: 32.1x
-1sd: -16.7x
with exclusive rights to engage in oil and gas exploration in Sep-14
-58.9
Sep-15 Sep-16 Sep-17 Sep-18
offshore China. It has also increased its overseas output levels

significantly via inorganic growth over the last 6-7 years. PB Band
1.7
(x)
1.5
1.3 +2sd: 1.3x

+1sd: 1.15x
1.1
Avg: 1.01x
0.9
-1sd: 0.86x
0.7 -2sd: 0.71x
0.5
Page 12
Company Guide
CNOOC Ltd
Key Assumptions
FY Dec 2015A 2016A 2017A 2018F 2019F
Realized oil price (US$/bbl) 51.3 41.4 52.7 67.7 72.8
Realized gas price (US$/mcf) 6.4 5.5 5.8 6.5 7.0
Oil production (mmbbls) 410.3 396.4 388.7 390.9 405.0
Gas production (bcf) 497.7 467.1 474.7 519.0 526.7
Income Statement (RMB m)

FY Dec 2015A 2016A 2017A 2018F 2019F
Revenue 171,437 146,490 186,390 229,749 252,694
Cost of Goods Sold (145,126) (137,607) (136,458) (135,193) (146,612)
Gross Profit 26,311 8,883 49,932 94,556 106,082
Other Opng (Exp)/Inc (8,855) (11,295) (12,882) (14,934) (17,689)
Operating Profit 17,456 (2,412) 37,050 79,622 88,394
Other Non Opg (Exp)/Inc 3,016 2,558 2,843 2,700 2,700
Associates & JV Inc 1,903 (76) 855 (5,447) 1,153
Net Interest (Exp)/Inc (5,245) (5,345) (4,391) (4,655) (4,238)
Dividend Income 0 0 0 0 0
Exceptional Gain/(Loss) 0 0 0 0 0
Pre-tax Profit 17,130 (5,275) 36,357 72,221 88,009
Tax 3,116 5,912 (11,680) (18,055) (22,002)
Minority Interest 0 0 0 0 0
Preference Dividend 0 0 0 0 0
Net Profit 20,246 637 24,677 54,165 66,007
Net Profit before Except. 20,246 637 24,677 54,165 66,007
EBITDA 95,814 68,977 102,005 137,458 154,676
Growth
Revenue Gth (%) (37.6) (14.6) 27.2 23.3 10.0
EBITDA Gth (%) (33.7) (28.0) 47.9 34.8 12.5
Opg Profit Gth (%) (78.4) (113.8) (1,636.1) 114.9 11.0
Net Profit Gth (%) (66.4) (96.9) 3,773.9 119.5 21.9
Margins & Ratio
Gross Margins (%) 15.3 6.1 26.8 41.2 42.0
Opg Profit Margin (%) 10.2 (1.6) 19.9 34.7 35.0
Net Profit Margin (%) 11.8 0.4 13.2 23.6 26.1
ROAE (%) 5.3 0.2 6.5 13.7 15.4
ROA (%) 3.1 0.1 3.9 8.5 9.7
ROCE (%) 2.5 (0.8) 3.5 8.4 9.9
Div Payout Ratio (%) 100.9 2,153.7 74.7 48.0 42.0
Net Interest Cover (x) 3.3 (0.5) 8.4 17.1 20.9
Page 13
Company Guide
CNOOC Ltd
Interim Income Statement (RMB m)

FY Dec 1H2016 2H2016 1H2017 2H2017 1H2018
Revenue 66,832 79,658 92,362 94,028 105,649

Gross Profit (6,478) 15,361 28,971 20,961 47,337
Other Oper. (Exp)/Inc (4,318) (6,977) (6,886) (5,996) (6,099)
Operating Profit (10,796) 8,384 22,085 14,965 41,238
Other Non Opg (Exp)/Inc 1,708 850 1,385 1,458 2,695
Associates & JV Inc 229 (305) 441 414 (6,272)
Pre-tax Profit (11,647) 6,372 21,516 14,841 35,518
Tax 3,912 2,000 (5,266) (6,414) (10,040)
Minority Interest 0 0 0 0 0
Net Profit (7,735) 8,372 16,250 8,427 25,477
Net profit bef Except. (7,735) 8,372 16,250 8,427 25,478
Growth
Revenue Gth (%) (25.4) (2.7) 38.2 18.0 14.4
Opg Profit Gth (%) (179.0) 121.7 (304.6) 78.5 86.7
Net Profit Gth (%) N/A 51.9 N/A 0.7 56.8
Margins
Gross Margins (%) (9.7) 19.3 31.4 22.3 44.8
Opg Profit Margins (%) (16.2) 10.5 23.9 15.9 39.0
Net Profit Margins (%) (11.6) 10.5 17.6 9.0 24.1
Balance Sheet (RMB m)

FY Dec 2015A 2016A 2017A 2018F 2019F
Net Fixed Assets 454,141 432,465 395,868 404,185 400,031

Invts in Associates & JVs 28,413 29,995 29,146 23,599 24,652
Other LT Assets 41,597 53,176 53,367 46,967 45,567
Cash & ST Invts 29,877 30,565 27,952 39,219 60,710
Inventory 9,263 8,709 7,354 8,228 8,824
Debtors 21,829 23,289 20,787 34,462 37,904
Other Current Assets 79,242 59,482 82,745 102,745 122,745
Total Assets 664,362 637,681 617,219 659,406 700,433
ST Debt 33,585 19,678 13,892 23,892 23,892

Creditors 32,614 25,345 26,713 34,084 37,150
Other Current Liab 18,181 22,067 20,807 20,807 20,807
LT Debt 131,060 130,798 118,358 113,436 111,467
Other LT Liabilities 62,881 57,422 57,474 59,061 60,695
Shareholder’s Equity 386,041 382,371 379,975 408,126 446,421
Minority Interests 0 0 0 0 0
Total Cap. & Liab. 664,362 637,681 617,219 659,406 700,433
Non-Cash Wkg. Capital 59,539 44,068 63,366 90,544 111,516

Net Cash/(Debt) (134,768) (119,911) (104,298) (98,109) (74,649)
Debtors Turn (avg days) 54.6 56.2 43.2 43.9 52.3
Creditors Turn (avg days) 215.9 154.0 126.3 148.7 154.4
Inventory Turn (avg days) 50.6 47.7 39.0 38.1 37.0
Asset Turnover (x) 0.3 0.2 0.3 0.4 0.4
Current Ratio (x) 1.7 1.8 2.3 2.3 2.8
Quick Ratio (x) 0.6 0.8 0.8 0.9 1.2
Net Debt/Equity (X) 0.3 0.3 0.3 0.2 0.2
Net Debt/Equity ex MI (X) 0.3 0.3 0.3 0.2 0.2
Capex to Debt (%) 41.1 32.6 37.9 54.6 48.0
Z-Score (X) 196.4 NA NA NA NA
Page 14
Company Guide
CNOOC Ltd
Cash Flow Statement (RMB m)

FY Dec 2015A 2016A 2017A 2018F 2019F
Pre-Tax Profit 17,130 (5,275) 36,357 72,221 88,009

Dep. & Amort. 73,439 68,907 61,257 60,583 62,429
Tax Paid (16,000) 0 (11,680) (18,055) (22,002)
Assoc. & JV Inc/(loss) (1,903) 76 (855) 5,447 (1,153)
(Pft)/ Loss on disposal of FAs 0 0 0 0 0
Chg in Wkg.Cap. (492) 0 0 (2,178) (972)
Other Operating CF 7,921 9,155 9,655 3,541 3,172
Net Operating CF 80,095 72,863 94,734 121,559 129,483
Capital Exp.(net) (67,674) (49,000) (50,100) (75,000) (65,000)
Other Invts.(net) (17,366) 0 (21,156) (20,000) (20,000)
Invts in Assoc. & JV (9) 0 0 0 0
Div from Assoc & JV 196 0 100 100 100
Other Investing CF 8,358 21,047 6,745 11,039 12,002
Net Investing CF (76,495) (27,953) (64,411) (83,861) (72,898)
Div Paid (20,419) (13,719) (18,431) (26,015) (27,711)
Chg in Gross Debt 18,809 0 0 5,078 (1,969)
Capital Issues 0 0 0 0 0
Other Financing CF (5,283) (29,521) (12,840) (5,493) (5,414)
Net Financing CF (6,893) (43,240) (31,271) (26,430) (35,094)
Currency Adjustments 242 198 (215) 0 0
Chg in Cash (3,051) 1,868 (1,163) 11,267 21,491
Opg CFPS (RMB) 1.80 1.63 2.12 2.77 2.92
Free CFPS (RMB) 0.28 0.53 1.00 1.04 1.44
Target Price & Ratings History
HK$ S.No. Dat e Closing 12- mt h Rat ing

15.0 4 Price T arget
5 Price
14.0 1: 6-Nov-17 HK$10.86 HK$13.00 Buy
2 2: 2-Feb-18 HK$12.08 HK$15.00 Buy
13.0 1 3: 3-Apr-18 HK$11.14 HK$15.00 Buy
4: 18-May-18 HK$13.22 HK$16.00 Buy
12.0 3
5: 24-Aug-18 HK$12.84 HK$16.00 Buy
11.0
10.0
9.0
Dec-17
Mar-18
May-18
Jun-18
Sep-17
Apr-18
Sep-18
Jan-18
Jul-18
Nov-17
Feb-18
Aug-18
Oct-17
Oct-17
Source: DBS HK
Analyst: Pei Hwa HO
Page 15
Company Guide
CNOOC Ltd
DBS HK recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
Completed Date: 6 Sep 2018 09:29:38 (HKT)

Dissemination Date: 6 Sep 2018 11:54:56 (HKT)
Sources for all charts and tables are DBS HK unless otherwise specified.
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Bank (Hong Kong) Limited (“DBS HK”). This report is solely intended for the clients of DBS Bank Ltd., DBS HK, DBS
Vickers (Hong Kong) Limited (“DBSV HK”), and DBS Vickers Securities (Singapore) Pte Ltd. (“DBSVS”), its respective connected and associated
corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii)
redistributed without the prior written consent of DBS HK.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS
Bank Ltd., DBS HK, DBSV HK, DBSVS, its respective connected and associated corporations, affiliates and their respective directors, officers,
employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or
sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we
do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions
expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document
does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is
for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain
separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss
(including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation
to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along
with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document.
The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform
broking, investment banking and other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can
be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.
The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may
not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to
update the information in this report.
This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned
schedule or frequency for updating research publication relating to any issuer.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on
which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual
results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED
UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the
commodity referred to in this report.
DBS Vickers Securities (USA) Inc (“DBSVUSA”), a US-registered broker-dealer, does not have its own investment banking or research department,
has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past
twelve months and does not engage in market-making.
Page 16
Company Guide
CNOOC Ltd
ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s)
primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of
the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the
real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the
management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or
his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has
procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of
research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment
banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment
banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the
DBS Group.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK or their subsidiaries and/or other affiliates have a proprietary position in Cnooc Limited (883
HK) recommended in this report as of 03 Sep 2018.
2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research
Report.
3. Compensation for investment banking services:

DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities
as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to
obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security
discussed in this document should contact DBSVUSA exclusively.
4. Disclosure of previous investment recommendation produced:

DBS Bank Ltd, DBSVS, DBS HK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment
recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12
months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations
published by DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months.
1
An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of
which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person
accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2
Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a
new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term
does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new
listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.
Page 17
PetroChina
BUY Look forward to favourable policy

Last Traded Price ( 5 Sep 2018):HK$5.66(HSI : 27,244) support
Price Target 12-mth:HK$8.20 (44.9% upside) (Prev HK$8.00)
Analyst Maintain BUY with higher TP of HK$8.20, following upward

Pei Hwa HO+65 6682 3714, peihwa@dbs.com revision in E&P earnings. We have revised up our average Brent
crude oil forecasts for 2019 to US$75-80/bbl (from US$65-
What’s New 70/bbl earlier) and also introduce 2020 average Brent crude oil
• Raised FY19F earnings by 14% on crude oil ASP forecast of US$70-75/bbl (vs our previous assumption of US$65-
increase of US$7/bbl 70/bbl). Despite operational improvements, PetroChina’s share
• Earnings recovery and potential favourable sector price has not moved very much from the 2015 low vs peers’ 70-
policies are key re-rating catalysts 80% recovery. We believe the steep undervaluation, which
could be due to market jitters over lagging earnings recovery
• Prime beneficiary of gas sector reform towards
and policy uncertainties especially on the gas and pipeline front,
market-based pricing
should narrow with recent oil price upswing translating to
• Reiterate BUY; TP lifted to HK$8.20 better earnings, and more clarity on favourable policies.
Price Relative
HK$
Where we differ: Even though PetroChina is an integrated oil
Relative Index
12.8 213
company, we view the E&P segment as the key to a share price
11.8
10.8
193
173
re-rating, as historically the E&P segment has accounted for the
9.8 153 majority of its operating profits (see Appendix 1).
8.8 133
7.8 113
6.8 93
5.8 73 Catalysts: Stronger-than-expected oil prices could spark upside
4.8
3.8 33
53
to share price. Improvement in E&P, divestment of pipeline
assets, and more favourable pricing/policy on its loss-making
PetroChina (LHS) Relative HSI (RHS)

imported natural gas are also key catalysts.
Forecasts and Valuation
FY Dec (RMBm) 2016A 2017A 2018F 2019F Valuation:
Turnover 1,616,903 2,015,890 2,263,932 2,378,153 We lifted our SOTP-based TP to HK$8.20 (vs. HK$8.00
EBITDA 270,151 315,415 363,486 395,342
previously), factoring higher E&P earnings. Of this, the E&P
Pre-tax Profit 45,140 53,089 116,202 139,700
Net Profit 7,856 22,798 56,939 68,453 segment alone is worth about 64% of the total equity value or
Net Pft (Pre Ex) (core (6,137) 28,242 56,939 68,453 about HK$5.22/share based on our estimate.
Net Profit Gth (Pre-ex)
profit) N/A N/A 101.6 20.2
EPS
(%)(RMB) 0.04 0.12 0.31 0.37 Key Risks to Our View:
EPS (HK$) 0.05 0.14 0.36 0.43
Core EPS (RMB) (0.03) 0.15 0.31 0.37 Oil price risk. If US shale players ramp up output to higher-
Core EPS (HK$) (0.04) 0.18 0.36 0.43 than-expected levels, oil prices may see a downward
EPS Gth (%) (77.9) 190.2 149.8 20.2 correction, which would impact PetroChina’s profits.
Core EPS Gth (%) N/A N/A 101.6 20.2
Diluted EPS (HK$) 0.05 0.14 0.36 0.43
DPS (HK$) 0.07 0.15 0.21 0.24 At A Glance
BV Per Share (HK$) 7.45 7.48 7.62 7.81 Issued Capital - H shares (m shs) 21,099
PE (X) 115.0 39.6 15.9 13.2 - Non H shrs (m shs) 161,922
CorePE (X) nm 32.0 15.9 13.2 H shs as a % of Total 12
P/Cash Flow (X) 3.4 2.5 3.2 2.6
P/Free CF (X) 10.7 6.0 16.2 7.4 Total Mkt Cap (HK$m/US$m) 1,645,203 / 209,601
EV/EBITDA (X) 5.6 4.5 4.1 3.7 Major Shareholders (%)
Net Div Yield (%) 1.2 2.6 3.8 4.2 China National Petroleum Corporation Limited 95.7
P/Book Value (X) 0.8 0.8 0.7 0.7 Major H Shareholders (As % of H shares)
Net Debt/Equity (X) 0.3 0.2 0.3 0.3
BlackRock Institutional Trust Company, N.A. 5.2
ROAE(%) 0.7 1.9 4.7 5.6
H Shares-Free Float (%) 94.8
Earnings Rev (%): Nil 14 3m Avg. Daily Val. (US$m) 85.7
Consensus EPS 0.32 0.37 0.38
ICB Industry: Oil & Gas / Oil & Gas Producers
Other
(RMB)Broker Recs: B:14 S:0 H:6
Source of all data on this page: Company, DBS Bank (Hong Kong) Limited
(“DBS HK”), Thomson Reuters, HKEX
ed-JS/ sa- CS /Ah Page 18

Company Guide
PetroChina
CRITICAL FACTORS TO WATCH Brent price (US$/bbl)

75
75.8 70
Critical Factors 64.9
E&P segment accounts for majority of operating profits – 54.1
53.6 54.8
realised oil price is crucial. PetroChina’s operating profit has 43.3

45.1
historically been driven by the E&P segment, which accounted

32.5
for 100% of operating profit in times of high oil prices (as
21.6
refining & chemicals segment incurred losses), but c.60-80% of
10.8
operating profit in times of low oil prices (e.g. in 2009 and
0.0
2015 when Brent was US$62/bbl and US$54/bbl respectively). 2015A 2016A 2017A 2018F 2019F
Given that PetroChina’s breakeven level is estimated to be PetroChina realised crude oil price (RMB/ton)
~US$50/bbl, and our house forecast is for a long-term Brent 3,248.5
price of US$65-70/bbl, we think PetroChina’s E&P segment will 3,035.0
see a gradual rebound in operating profit. Thus, a recovery in 2,651

2,392.0
global benchmark oil prices is a key data point to watch. 2,134.0
1,988 1,881.0
Pipeline reform could unlock value for PetroChina. Based on 1,325
current share price, the market seems to be assigning a close-

663
to-zero value for PetroChina’s non-E&P segments. We are of
the view that progress in pipeline reform (e.g. via divestment of 0
2015A 2016A 2017A 2018F 2019F
the pipeline assets) would unlock value for PetroChina’s
PetroChina realised natural gas price (RMB/cubic metre)
shareholders. While it remains uncertain as to how the pipeline
reform would pan out, it should benefit PetroChina if it holds a 1,515.8
1,584.3
stake in the reorganised pipeline entity. 1,371.0

1,236.0
1,293
1,097.0
Natural gas losses depressing profits - renegotiation for lower 970
import prices would be a boon. PetroChina accounts for at 646

least 65% of China’s natural gas imports by our estimates.
Currently, the company incurs losses on natural gas imports as 323
realised prices on gas sold domestically are lower than import 0

prices (mainly from Central Asia and Myanmar), while VAT 2015A 2016A 2017A 2018F 2019F
refunds on gas imports have been insufficient to offset these Source: Company, DBS HK
losses. The Chinese government’s target for natural gas to hit
10% of the country’s energy mix by 2020 – up from 5.9% in
2015 - also looks set to increase PetroChina’s volume of loss-
making imports. Substantially higher gas prices within China
would have a counter-productive effect on these targets (gas
price needs to be low to encourage consumption), which
means there should be renegotiation with export partners for
lower import prices as a solution. Such agreements would
provide a boost to PetroChina’s profits and share price.
High gas reserves, but crude oil reserves running below peer
average. PetroChina’s total reserve life as of end-December
2017 stood at c.14 years – one of the highest among
integrated peers. However, its reserves are largely skewed
towards natural gas (23-year reserve life), while crude oil
reserve life stands at a much lower ~9 years, which is below
peer average. Major crude oil discoveries or M&A at reasonable
prices for overseas crude oil assets could provide investors with
greater confidence and give the share price a boost.
Page 19
Company Guide
PetroChina
Appendix 1: A look at PetroChina's listed history – what drives its share price?
Share price demonstrates high correlation with crude oil prices
(US$/bbl) (HK$/sh)
160 25
r = 0. 86
140
20
120
100 15
80
60 10
40
5
20
0 0
Brent PetroChina (H)
Share price has also shown strong correlation to operating profits
Page 20
Company Guide
PetroChina
The link: PetroChina’s upstream segment accounts for the majority of profits when oil prices are not extremely low
Source: Company, Bloomberg Finance L.P., DBS Bank
Page 21
Company Guide
PetroChina
Balance Sheet:
Manageable gearing and bond maturity profile. PetroChina's Leverage & Asset Turnover (x)
net gearing of c.0.23x as of end-June 2018 sits in the middle of 1.0
0.50
its peer range. We expect PetroChina's to churn positive OCF 1.0
0.9
of c.RMB260-360bn per annum over the next three years. 0.40
0.9
Capex spending should also be maintained at relatively lower 0.30
0.8
levels going forward (guidance of c.RMB226bn for FY18 vs.
0.20 0.8
peak levels of around RMB290-350bn from 2012-2014) given
0.7
the focus on value over volume, freeing up more cash for debt 0.10
0.7
repayments. 0.00 0.6
2015A 2016A 2017A 2018F 2019F
Gross Debt to Equity (LHS) Asset Turnover (RHS)
Capital Expenditure
Benchmark oil prices. As PetroChina’s E&P segment has the RMBm
largest potential to boost operating profits, any rise or fall in 250,000.0
benchmark oil prices would affect PetroChina’s outlook for its 200,000.0
operating profits.
150,000.0
Key Risks: 100,000.0
Oil price risk. If US shale players ramp up output to higher- 50,000.0

than-expected levels, oil prices may see a downward
0.0
correction, which would impact PetroChina’s profits. 2015A 2016A 2017A 2018F 2019F
Capital Expenditure (-)
Intensifying competition from teapot refiners. Teapot refiners, ROE

mainly in the Shandong area, have been selling increasing
5.0%
amounts of refined products to independent retailers, which
sparked a retail price war in certain areas (mainly near 4.0%
Shandong) for gasoline in 2H17. While that price war has 3.0%
abated, a resurgence of intense competition could erode
PetroChina’s margins further. 2.0%
1.0%
Company Background
PetroChina is the largest integrated oil company in China with 0.0%
2015A 2016A 2017A 2018F 2019F
operations in the upstream, midstream and downstream PB Band
segments (including chemicals) of the oil and gas value chain. (x)
1.5
1.3
+2sd: 1.18x
1.1
+1sd: 1x
0.9
Avg: 0.81x
0.7
-1sd: 0.62x
0.5
-2sd: 0.44x
0.3
Page 22
Company Guide
PetroChina
Key Assumptions
FY Dec 2015A 2016A 2017A 2018F 2019F
Brent price (US$/bbl) 53.6 45.1 54.8 70.0 75.0
PetroChina realised crude
2,134.0 1,881.0 2,392.0 3,035.0 3,248.5
oil price (RMB/ton)
PetroChina realised
natural gas price 1,371.0 1,097.0 1,236.0 1,515.8 1,584.3
(RMB/cubic metre)
Segmental Breakdown (RMB m)

FY Dec 2015A 2016A 2017A 2018F 2019F
Revenues (RMB m)
E&P 90,989 76,768 96,127 122,133 130,722
Refining & Chemicals 140,421 143,657 172,289 180,679 186,025
Marketing 1,236,707 1,175,272 1,480,764 1,640,452 1,701,297
Natural gas & pipeline 255,519 219,693 265,310 319,269 358,709
HQ and other 1,792 1,513 1,400 1,400 1,400
Total 1,725,428 1,616,903 2,015,890 2,263,932 2,378,153

Operating profit (RMB m)
E&P 33,961 3,148 15,475 58,624 67,976
Refining & Chemicals 4,883 39,026 39,961 41,556 40,925
Marketing (500) 11,048 8,279 9,022 10,208
Natural gas & pipeline 28,424 17,885 15,688 30,718 45,014
HQ and other (10,323) (10,472) (11,681) (10,825) (10,825)
Total 56,445 60,635 67,722 129,095 153,297

Operating profit Margins
(%)
E&P 37.3 4.1 16.1 48.0 52.0
Refining & Chemicals 3.5 27.2 23.2 23.0 22.0
Marketing 0.0 0.9 0.6 0.6 0.6
Natural gas & pipeline 11.1 8.1 5.9 9.6 12.5
HQ and other (576.1) (692.1) (834.4) (773.2) (773.2)
Total 3.3 3.8 3.4 5.7 6.4

Page 23
Company Guide
PetroChina

FY Dec 2015A 2016A 2017A 2018F 2019F
Revenue 1,725,428 1,616,903 2,015,890 2,263,932 2,378,153
Cost of Goods Sold (1,661,208) (1,570,261) (1,942,724) (2,134,838) (2,224,856)
Gross Profit 64,220 46,642 73,166 129,095 153,297
Other Opng (Exp)/Inc 0 0 0 0 0
Operating Profit 64,220 46,642 73,166 129,095 153,297
Other Non Opg (Exp)/Inc (632) 1,257 (1,094) 0 0
Associates & JV Inc 1,504 4,105 5,968 6,968 7,968
Exceptional Gain/(Loss) 15,032 13,993 (5,444) 0 0
Pre-tax Profit 57,815 45,140 53,089 116,202 139,700
Tax (15,726) (15,768) (16,296) (34,861) (41,910)
Minority Interest (6,572) (21,515) (13,995) (24,402) (29,337)
Preference Dividend 0 (1) 0 0 0
Net Profit 35,517 7,856 22,798 56,939 68,453
Net Profit before Except. 20,485 (6,137) 28,242 56,939 68,453
EBITDA 267,967 270,151 315,415 363,486 395,342
Growth
Revenue Gth (%) (24.4) (6.3) 24.7 12.3 5.0
EBITDA Gth (%) (25.9) 0.8 16.8 15.2 8.8
Opg Profit Gth (%) (63.4) (27.4) 56.9 76.4 18.7
Net Profit Gth (%) (66.9) (77.9) 190.2 149.8 20.2
Margins & Ratio
Gross Margins (%) 3.7 2.9 3.6 5.7 6.4
Opg Profit Margin (%) 3.7 2.9 3.6 5.7 6.4
ROAE (%) 3.0 0.7 1.9 4.7 5.6
ROA (%) 1.5 0.3 0.9 2.3 2.7
ROCE (%) (0.1) (1.3) 0.4 1.8 2.3
Div Payout Ratio (%) 40.5 138.2 104.4 60.0 55.0
Net Interest Cover (x) 2.9 2.2 3.8 6.5 7.1
Page 24
Company Guide
PetroChina
Quarterly Income Statement (RMB m)

FY Dec 2Q2017 3Q2017 4Q2017 1Q2018 2Q2018
Revenue 482,350 481,795 558,186 542,654 566,168

Gross Profit 34,192 38,004 (36,110) 45,451 56,740
Other Oper. (Exp)/Inc (17,391) (21,127) 55,916 (17,411) (18,889)
Other Non Opg (Exp)/Inc (525) (667) 297 (823) 1,192
Exceptional Gain/(Loss) 0 0 (5,444) 0 0
Pre-tax Profit 12,756 12,613 12,645 24,293 36,116
Tax (2,412) (3,682) (5,746) (9,081) (13,986)
Net Profit 6,975 4,690 5,432 10,153 16,935
Net profit bef Except. 6,975 4,690 10,876 10,153 16,935
EBITDA 66,408 66,408 94,923 80,788 103,670
Growth (QoQ)
Revenue Gth (%) (2.3) (0.1) 15.9 (2.8) 4.3
EBITDA Gth (%) (4.2) (11.9) 42.9 (14.9) 28.3
Opg Profit Gth (%) (14.6) 0.5 17.4 41.6 35.0
Net Profit Gth (%) 22.3 (32.8) 15.8 86.9 66.8
Growth (YoY)
Revenue Gth (%) 24.9 17.1 19.7 9.9 17.4
EBITDA Gth (%) (19.9) 6.1 22.0 2.7 37.5
Opg Profit Gth (%) (54.9) 53.8 31.0 42.5 125.3
Net Profit Gth (%) (51.3) 290.8 (11.3) 78.1 142.8
Margins
Gross Margins (%) 7.1 7.9 (6.5) 8.4 10.0
Opg Profit Margins (%) 3.5 3.5 3.5 5.2 6.7
Net Profit Margins (%) 1.4 1.0 1.0 1.9 3.0
Page 25
Company Guide
PetroChina

FY Dec 2015A 2016A 2017A 2018F 2019F
Net Fixed Assets 1,784,905 1,739,545 1,702,813 1,701,189 1,692,112

Other LT Assets 188,619 196,474 195,478 250,193 258,117
Cash & ST Invts 73,692 98,617 136,121 56,612 92,060
Inventory 126,877 146,865 144,669 215,074 225,925
Debtors 52,262 47,315 53,143 67,918 71,345
Total Assets 2,393,844 2,396,651 2,404,612 2,500,873 2,554,061
ST Debt 106,226 143,384 175,417 175,417 175,417

Creditors 331,040 310,680 343,819 429,822 449,986
LT Debt 434,475 372,887 289,858 289,858 289,858
Shareholder’s Equity 1,179,716 1,189,024 1,193,520 1,216,296 1,247,099
Minority Interests 164,318 183,711 187,799 187,799 187,799
Total Cap. & Liab. 2,393,844 2,396,651 2,404,612 2,500,873 2,554,061
Non-Cash Wkg. Capital (89,529) (72,831) (112,209) (71,668) (73,762)

Net Cash/(Debt) (467,009) (417,654) (329,154) (408,663) (373,215)
Asset Turnover (x) 0.7 0.7 0.8 0.9 0.9
Current Ratio (x) 0.7 0.8 0.7 0.7 0.8
Quick Ratio (x) 0.3 0.3 0.3 0.2 0.2
Net Debt/Equity (X) 0.3 0.3 0.2 0.3 0.3
Capex to Debt (%) 40.3 35.1 46.5 48.5 48.4

FY Dec 2015A 2016A 2017A 2018F 2019F
Pre-Tax Profit 57,815 45,140 53,089 116,202 139,700

Dep. & Amort. 202,875 218,147 237,375 227,424 234,077
Tax Paid (28,192) (13,188) (16,296) (34,861) (41,910)
Assoc. & JV Inc/(loss) (1,504) (4,105) (5,968) (6,968) (7,968)
Chg in Wkg.Cap. 13,674 (532) 32,034 (40,201) 1,594
Net Operating CF 261,312 265,179 366,655 281,457 347,059
Capital Exp.(net) (217,750) (181,054) (216,227) (225,800) (225,000)
Other Invts.(net) 3,857 (160) (100) (100) (100)
Invts in Assoc. & JV (1,637) (2,008) 0 0 0
Div from Assoc & JV 9,617 10,505 10,000 10,000 10,000
Other Investing CF (9,966) (3,170) (37,219) (50,812) (5,726)
Net Investing CF (215,879) (175,887) (243,546) (266,712) (220,826)
Div Paid (34,319) (10,851) (37,788) (58,566) (66,986)
Chg in Gross Debt 12,018 (36,392) 0 0 0
Capital Issues 1,297 939 0 0 0
Other Financing CF (24,435) (20,703) (56,937) (35,789) (23,899)
Net Financing CF (45,439) (67,007) (94,725) (94,354) (90,885)
Currency Adjustments (999) 2,873 (3,538) 0 0
Chg in Cash (1,005) 25,158 24,846 (79,609) 35,348
Opg CFPS (RMB) 1.35 1.45 1.83 1.76 1.89
Free CFPS (RMB) 0.24 0.46 0.82 0.30 0.67
Page 26
Company Guide
PetroChina

7.0 3 5 Price T arget
4
2 Price
6.5 1: 6-Nov-17 HK$5.28 HK$6.50 Buy
1 2: 28-Mar-18 HK$5.50 HK$6.40 Buy
6.0 3: 18-May-18 HK$5.70 HK$7.10 Buy
4: 28-May-18 HK$6.05 HK$7.60 Buy
5.5
5: 31-Aug-18 HK$6.07 HK$8.00 Buy
5.0
4.5
4.0
Dec-17
Mar-18
May-18
Jun-18
Apr-18
Sep-17
Sep-18
Jan-18
Jul-18
Nov-17
Feb-18
Aug-18
Oct-17
Oct-17
Source: DBS HK
Analyst: Pei Hwa HO
Page 27
Company Guide
PetroChina

Page 28
Company Guide
PetroChina
primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of
DBS Group.
1. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK or their subsidiaries and/or other affiliates have a proprietary position in Petrochina Company
Limited (857 HK) recommended in this report as of 3 Sep 2018.
Report.


1
2
Page 29
China Petroleum & Chem (Sinopec)
BUY Marching towards record profit

Last Traded Price ( 5 Sep 2018):HK$7.44(HSI : 27,244)
Price Target 12-mth:HK$9.30 (25.0% upside) Maintain BUY; TP HK$9.30. We lifted FY19F earnings slightly by 1.4%
on higher oil price assumption. We have revised up our average Brent
Analyst
Pei Hwa HO+65 6682 3714, crude oil forecasts for 2019 to US$75-80/bbl (from US$65-70/bbl
peihwa@dbs.com earlier) and also introduce 2020 average Brent crude oil forecast of
US$70-75/bbl. Impact is partially offset by lower profit for
What’s New downstream segments. We continue to like Sinopec for its earnings
resiliency having a good mix of upstream and downstream assets,
• FY19F earnings lifted slightly by 1% as we
generous dividend yield ~9% and potential IPO of marketing arm.
increased oil price assumption by US$7/bbl.
• Earnings more resilient given the upstream and Policy trends, potential IPO and solid dividend payout expectations are
downstream asset mix supportive of share price. Sinopec is a key beneficiary of stricter
• IPO of marketing arm is a catalyst policies announced in January aimed at tackling tax evasion in China.
• Reiterate BUY; TP HK$9.30; lucrative dividend yield This should lower teapot refiners’ access to cheap feedstock and
of 8-9% support refined fuel prices. Meanwhile, the IPO of the marketing arm
remains in the pipeline, which could boost Sinopec’s valuation by
Price Relative c.10%. Lastly, strong free cash flow should support high dividend
HK$ Relative Index
payouts; we are modelling in a c.85% payout ratio (65 HKcts per
8.5 211
191
share) in FY18 which translates into an attractive ~9% dividend yield.
7.5 171
151
6.5
5.5
131
111
Where we differ: We like that the company is working on addressing
4.5
91 the high E&P breakeven and low reserves. In the near term, the IPO of
71
3.5
Sep-14 Sep-15 Sep-16 Sep-17
51
Sep-18
the marketing business and/or spin-off of pipeline assets are potential
China Petroleum & Chem (Sinopec) (LHS) Relative HSI (RHS)
catalysts.
Forecasts and Valuation Valuation:

FY Dec (RMBm) 2016A 2017A 2018F 2019F Our SOTP valuation – based on reported PV-10 (present value estimate of
Turnover 1,930,911 2,360,193 2,529,022 2,647,514
EBITDA 194,577 203,899 246,923 255,113 future cash flows from oil & gas reserves based on 10% discount rate
Pre-tax Profit 80,151 86,697 137,586 138,948 and oil price as of year-end) for the E&P segment, 8x PE multiple for
Net Profit 46,672 51,244 80,139 83,354 Chemicals and Refining, and DCF for Marketing – gives a TP of HK$ 9.30.
Net Profit Gth (Pre-ex) 43.6 9.8 56.4 4.0 Including a dividend yield of c.9%, this implies an all-in potential return
EPS
(%)(RMB) 0.39 0.42 0.66 0.69
EPS (HK$) 0.44 0.49 0.76 0.79
of c.32%.
EPS Gth (%) 43.3 9.8 56.4 4.0
Diluted EPS (HK$) 0.44 0.49 0.76 0.79 Key Risks to Our View:
DPS (HK$) 0.29 0.57 0.64 0.52 A faster-than-expected slowdown in Chinese industrial sector activity
BV Per Share (HK$) 6.73 6.88 6.99 7.27
PE (X) 16.8 15.3 9.8 9.4 could depress demand for fuels, which would be negative for Sinopec.
P/Cash Flow (X) 3.7 4.1 3.4 3.8
P/Free CF (X) 5.5 6.5 7.0 9.6 At A Glance
EV/EBITDA (X) 4.9 4.3 3.5 3.4 Issued Capital - H shares (m shs) 25,513
Net Div Yield (%) 3.8 7.7 8.6 6.9
- Non H shrs (m shs) 95,558
P/Book Value (X) 1.1 1.1 1.1 1.0
Net Debt/Equity (X) 0.1 CASH CASH CASH H shs as a % of Total 21
ROAE(%) 6.7 7.1 10.9 11.1 Total Mkt Cap (HK$m/US$m) 925,542 / 117,915
Major Shareholders (%)
Earnings Rev (%): Nil 1
Consensus EPS 0.67 0.67 0.65 China Petrochemical Corporation 89.8
Other
(RMB)Broker Recs: B:19 S:0 H:2 Major H Shareholders (As % of H shares) 0
BlackRock Institutional Trust Company, N.A. 5.4
Source of all data on this page: Company, DBS Bank (Hong Kong) Limited
(“DBS HK”), Thomson Reuters, HKEX H Shares-Free Float (%) 94.6
3m Avg. Daily Val. (US$m) 99.7
ICB Industry: Oil & Gas / Oil & Gas Producers
ed-JS/ sa- CS /AH Page 30

Company Guide
CRITICAL FACTORS TO WATCH
Critical Factors
Sinopec tends to outperform when oil prices are low, or when
the futures curve is in backwardation. Relative to its Chinese oil
major peers, which have their upstream segments contributing
to the majority of group profits, Sinopec does well when oil
prices are low. It also tends to do well (sometimes despite high
oil prices) when the oil futures curve is in backwardation
(indicating strong current demand), such as during the mid-
2011 to mid-2014 period, when the market was pricing in a
steep backwardation in the futures curve of c.US$20/bbl.
When oil prices collapsed in late 2014, Sinopec’s shares
continued to outperform as refinery margins were given a
boost from low oil prices. The curve currently is in steep
backwardation, and our house forecast is for Brent to stay
within the US$65-70/bbl range in the long term, which should
be low enough to be close to Sinopec’s ‘sweet spot’.
Refining margins a key factor to share price performance. As

we expect the refining segment to account for c.50% of
Sinopec’s operating profits in FY18/FY19, refinery margins are
a critical factor in driving earnings and share price
performance. Historically, Sinopec has shown strong correlation
between its refining margins and its relative performance vs.
Chinese oil majors peers (see next page). Low oil price is one of
the drivers, but regional as well as domestic capacity and
output (particularly from teapot refiners) should be watched as
well, as these can have a significant impact on refining
margins.
Marketing segment – price war impact on margins vs. potential

IPO is a critical factor. Starting in March 2017, Sinopec and
PetroChina reportedly slashed retail fuel prices by as much as
20-30% in the northern regions of China in response to teapot
refineries selling higher volumes of cheaper refined fuels to
private petrol stations and fuel dealers. While the heavy
discounting has subsided, we estimate that every Rmb50/tonne
reduction in the retail price of gasoline and diesel has the
potential to lower the segment’s operating income by 16%.
On the flipside, a proposed overseas listing of the marketing
segment could help unlock value if valuations are above
expectations.
Low crude oil reserve life; asset purchases could help resolve
this issue. Sinopec’s crude oil reserve life is low at ~6.1 years,
as key oilfield Shengli (which accounted for 57% of 2017
crude oil output) is mature and not very economical at current
oil prices. The M&A of overseas assets could help alleviate the
concerns over reserve life, as domestic exploration has
apparently failed to yield fantastic results.
Page 31
Company Guide
Appendix 1: A look at Sinopec’s listed history – what drives its share price?
In the long term, Sinopec outperforms when oil prices are either low or expected to move lower (forward curve
implied)
(Indexed, Jan 2010 = 100) (US$/bbl; +ve = contango)
220 30
200 20
180 10
160 0
140 -10
From mid-2011 to mid-
2014, Sinopec's
120 -20
outperformance was
driven by steep
100 -30 backwardation in the
crude futures curve,
80 -40 indicating expectations of
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
lower oil prices in future
Sinopec relative performance (LHS) 4-year crude spread
(Indexed, Jan 2010 = 100) (US$/bbl)

220 140
200 120
Since the oil price
180 100 collapse, low oil prices
have helped Sinopec
160 80
outperform, as Sinopec is
more geared towards the
downstream segment vs.
140 60 PetroChina/CNOOC.
120 40
100 20
80 0
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
Sinopec relative performance (LHS) Front-month Brent
Relative performance vs. PetroChina and CNOOC; Sinopec tends to be influenced by refining margins
(Indexed; Jan 2010 = 100) (US$/bbl)
250 12.0
10.0
200
8.0
150
6.0
100
4.0
50
2.0
0 0.0
1/4/2010 1/4/2011 1/4/2012 1/4/2013 1/4/2014 1/4/2015 1/4/2016 1/4/2017 1/4/2018
Refining Margin Sinopec relative performance (LHS)
Source: Company, Bloomberg Finance L.P.
Page 32
Company Guide
Balance Sheet:
Cash balance and healthy operating cash flows should cover Leverage & Asset Turnover (x)
bond maturities. Sinopec’s bond maturity profile looks fairly 0.45 1.7
0.40
lumpy. However, it is very manageable in light of its current 1.7
0.35
1.6
cash balance of c.Rmb155bn and yearly operating cash flows 0.30
1.6
of c.Rmb190-210bn expected in FY18/FY19. Thus, we do not 0.25
1.5
see any liquidity issues for Sinopec. 0.20
1.5
0.15
1.4
Credit ratios are healthy. Having prudently directed cash to 0.10
0.05 1.4
debt repayments instead of capex over the last two years, 0.00 1.3
Sinopec’s gross debt amount has fallen by c.Rmb142bn (or 2015A 2016A 2017A 2018F 2019F
about 43%) since end-2014, and is now in a near-net cash Gross Debt to Equity (LHS) Asset Turnover (RHS)
Capital Expenditure
position, with a net gearing of just 0.04x as of 2Q18. EBITDA RMBm
interest cover is also not an issue, standing at ~26x for FY17 140,000.0
and is expected to remain at around these levels in FY18. 120,000.0
100,000.0
80,000.0
Crude oil prices remaining close to Sinopec’s sweet spot 60,000.0
(US$50-70/bbl); refinery margin improvement owing to fuel 40,000.0
20,000.0
quality upgrades and operational efficiency of new facilities;
0.0
and a potential IPO of the marketing unit could be key share 2015A 2016A 2017A 2018F 2019F
price drivers. Capital Expenditure (-)
ROE
Key Risks: 10.0%
Oil prices rising to US$80-100/bbl is a scenario that would
likely be negative for Sinopec, though we believe this to be 8.0%
unlikely owing to resilient US shale output, and uncertainty 6.0%

over the timeframe of OPEC and non-OPEC cuts.
4.0%
Company Background 2.0%

Sinopec is an integrated oil major based in China, with
operations in the upstream, midstream (pipeline), as well as 0.0%
2015A 2016A 2017A 2018F 2019F
downstream segments (marketing, refining, chemicals). Forward PE Band
Sinopec is the largest refiner in China, and accounted for (x)
22.5
about 43% of China’s total refinery throughput in 2016.
20.5
18.5 +2sd: 18.7x

16.5
+1sd: 15.3x
14.5
12.5
Avg: 11.9x
10.5
8.5 -1sd: 8.5x

6.5
4.5 -2sd: 5.1x

PB Band
1.5
(x)
1.4
1.3
1.2
1.1 +2sd: 1.13x
1.0 +1sd: 1.01x
0.9 Avg: 0.89x
0.8
-1sd: 0.77x
0.7
-2sd: 0.65x
0.6
0.5
Page 33
Company Guide
Segmental Breakdown (RMB m)

FY Dec 2015A 2016A 2017A 2018F 2019F
Revenues (RMB m)
Exploration and
138,653 115,939 157,505 184,235 190,302
Production
Refining 926,616 855,786 1,011,853 1,062,448 1,098,852
Marketing and
1,106,666 1,052,857 1,224,197 1,297,388 1,373,858
Distribution
Chemicals 328,871 335,114 437,743 490,364 516,472
Corporate and others 783,874 739,947 974,850 1,023,593 1,044,064
Elimination (1,264,305) (1,168,732) (1,445,955) (1,529,005) (1,576,034)
Total 2,020,375 1,930,911 2,360,193 2,529,022 2,647,514
Operating profit (RMB m)
Exploration and
47,057 (17,418) (36,641) (45,944) (6,551)
Production
Refining (1,954) 20,959 56,265 65,007 69,126
Marketing and
29,449 28,855 32,153 31,569 34,493
Distribution
Chemicals (2,181) 19,476 20,623 26,977 33,947
Corporate and others (1,063) 384 3,212 (4,484) 2,818
Elimination 2,179 4,566 1,581 (1,655) (6,000)
Total 73,487 56,822 77,193 71,470 127,834
(%)
Exploration and
33.9 (15.0) (23.3) (24.9) (3.4)
Production
Refining (0.2) 2.4 5.6 6.1 6.3
Marketing and
2.7 2.7 2.6 2.4 2.5
Distribution
Chemicals (0.7) 5.8 4.7 5.5 6.6
Corporate and others (0.1) 0.1 0.3 (0.4) 0.3
Elimination (0.2) (0.4) (0.1) 0.1 0.4
Total 3.6 2.9 3.3 2.8 4.8
Page 34
Company Guide

FY Dec 2015A 2016A 2017A 2018F 2019F
Revenue 2,020,375 1,930,911 2,360,193 2,529,022 2,647,514
Cost of Goods Sold (1,837,314) (1,731,157) (2,132,342) (2,246,918) (2,360,778)
Gross Profit 183,061 199,754 227,851 282,104 286,736
Other Non Opg (Exp)/Inc (3,650) (347) 594 237 217
Pre-tax Profit 56,411 80,151 86,697 137,586 138,948
Tax (12,613) (20,707) (16,279) (35,905) (34,746)
Preference Dividend 0 0 0 0 0
Net Profit 32,512 46,672 51,244 80,139 83,354
Net Profit before Except. 32,512 46,672 51,244 80,139 83,354
EBITDA 157,994 194,577 203,899 246,923 255,113
Growth
Revenue Gth (%) (28.5) (4.4) 22.2 7.2 4.7
EBITDA Gth (%) (4.3) 23.2 4.8 21.1 3.3
Opg Profit Gth (%) (22.7) 35.9 (7.4) 78.9 2.1
Net Profit Gth (%) (30.0) 43.6 9.8 56.4 4.0
Margins & Ratio
Gross Margins (%) 9.1 10.3 9.7 11.2 10.8
ROAE (%) 5.1 6.7 7.1 10.9 11.1
ROA (%) 2.2 3.2 3.3 5.0 5.1
ROCE (%) 2.6 3.7 4.5 7.1 7.3
Div Payout Ratio (%) 55.9 64.6 118.1 84.6 65.4
Interim Income Statement (RMB m)

FY Dec 1H2016 2H2016 1H2017 2H2017 1H2018
Revenue 879,220 1,051,691 1,165,837 1,194,356 1,300,252

Cost of Goods Sold (782,085) (949,072) (1,063,084) (1,069,258) (1,169,782)
Gross Profit 97,135 102,619 102,753 125,098 130,470
Other Non Opg (Exp)/Inc (379) 32 519 75 1,042
Net Interest (Exp)/Inc (3,806) (2,195) (1,522) (370) (465)
Pre-tax Profit 35,521 44,630 45,957 40,740 68,771
Tax (8,379) (12,328) (8,915) (7,364) (14,586)
Net Profit 19,919 26,753 27,915 23,329 42,386
Net profit bef Except. 19,919 26,753 27,915 23,329 42,386
Growth
Revenue Gth (%) (15.6) 7.4 32.6 13.6 11.5
Opg Profit Gth (%) (13.3) 157.8 12.0 (23.6) 56.6
Net Profit Gth (%) (21.6) 277.4 40.1 (12.8) 51.8
Margins
Gross Margins (%) 11.0 9.8 8.8 10.5 10.0
Page 35
Company Guide

FY Dec 2015A 2016A 2017A 2018F 2019F
Net Fixed Assets 733,449 690,594 650,774 664,721 679,751

Other LT Assets 295,869 278,942 284,594 280,551 276,296
Cash & ST Invts 69,666 142,497 216,200 226,206 228,802
Inventory 145,608 156,511 186,693 180,823 189,986
Debtors 56,142 50,289 68,494 63,640 66,622
Total Assets 1,447,268 1,498,609 1,595,504 1,621,445 1,662,099
ST Debt 115,446 74,819 80,649 70,649 65,649

Creditors 130,558 174,301 200,073 197,245 207,240
LT Debt 139,746 117,446 99,124 79,124 64,124
Minority Interests 111,964 120,241 126,770 148,313 169,160
Total Cap. & Liab. 1,447,268 1,498,609 1,595,504 1,621,445 1,662,099
Non-Cash Wkg. Capital (83,395) (140,960) (185,948) (216,734) (213,426)

Net Cash/(Debt) (185,526) (49,768) 36,427 76,433 99,029
Asset Turnover (x) 1.4 1.3 1.5 1.6 1.6
Current Ratio (x) 0.7 0.8 0.9 0.9 0.9
Quick Ratio (x) 0.3 0.4 0.5 0.5 0.5
Net Debt/Equity (X) 0.2 0.1 CASH CASH CASH
Net Debt/Equity ex MI (X) 0.3 0.1 CASH CASH CASH
Capex to Debt (%) 40.1 37.7 38.7 78.1 96.3

FY Dec 2015A 2016A 2017A 2018F 2019F
Pre-Tax Profit 56,411 80,151 86,697 137,586 138,948

Dep. & Amort. 96,460 108,425 115,310 107,096 114,226
Tax Paid (13,999) (23,236) (20,030) (13,015) (35,905)
Assoc. & JV Inc/(loss) (8,362) (9,306) (16,525) (11,756) (10,138)
Chg in Wkg.Cap. 11,615 47,176 (844) 7,897 (2,150)
Net Operating CF 165,740 214,543 190,935 229,806 207,079
Capital Exp.(net) (102,271) (72,407) (69,635) (117,000) (125,000)
Other Invts.(net) 0 0 0 0 0
Invts in Assoc. & JV (20,087) 17,127 (52,818) (5,000) (5,000)
Div from Assoc & JV 0 0 0 0 0
Other Investing CF 5,639 (10,937) (22,870) 0 0
Net Investing CF (116,719) (66,217) (145,323) (122,000) (130,000)
Div Paid (24,214) (16,876) (32,689) (67,800) (54,482)
Chg in Gross Debt (62,596) (62,994) (11,537) (30,000) (20,000)
Capital Issues 0 0 0 0 0
Other Financing CF 97,062 4,119 21,474 0 0
Net Financing CF 10,252 (75,751) (22,752) (97,800) (74,482)
Currency Adjustments 293 256 (353) 0 0
Chg in Cash 59,566 72,831 22,507 10,006 2,597
Opg CFPS (RMB) 1.28 1.38 1.58 1.83 1.73
Free CFPS (RMB) 0.53 1.17 1.00 0.93 0.68
Page 36
Company Guide

9.0 Price T arget
3 Price
8.5 5
4 1: 6-Nov-17 HK$5.74 HK$7.50 Buy
8.0 2: 27-Mar-18 HK$6.93 HK$8.50 Buy
2
7.5 3: 18-May-18 HK$7.71 HK$9.00 Buy
1
4: 28-May-18 HK$7.32 HK$9.00 Buy
7.0
5: 27-Aug-18 HK$7.52 HK$9.30 Buy
6.5
6.0
5.5
5.0
Dec-17
Mar-18
May-18
Jun-18
Apr-18
Sep-17
Sep-18
Jan-18
Jul-18
Nov-17
Feb-18
Aug-18
Oct-17
Oct-17
Source: DBS HK
Analyst: Pei Hwa HO
Page 37
Company Guide

Page 38
Company Guide
primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate 1 does not serve as an officer of
DBS Group.
1. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK or their subsidiaries and/or other affiliates have a proprietary position in China Petroleum &
Chemical Corporation (386 HK) recommended in this report as of 03 Sep 2018.
Report.


1
2
Page 39
Indonesia Company Guide
Medco Energi Internasional
Version 10 | Bloomberg: MEDC IJ | Reuters: MEDC.JK Refer to important disclosures at the end of this report
BUY Boosted by upbeat oil price outlook

Last Traded Price ( 5 Sep 2018): Rp760 (JCI : 5,683.50) Maintain BUY with new TP of Rp1,530. We slightly revise
Price Target 12-mth: Rp1,530 (101% upside) (Prev Rp1,500) upwards our FY19/20 earnings forecast by 4% mainly on higher
crude oil average selling price (ASP), in line with DBS FY19/20
Analyst new crude oil price forecast of US$75-80 per bbl /US$70-75 per
William Simadiputra +62 2130034939
william.simadiputra@id.dbsvickers.com bbl. Medco Energi Internasional’s (MEDC) earnings are expected
to benefit from the higher oil price trend, thanks to its low cost
structure and room to boost output. MEDC’s is expected to
What’s New keep its cash cost per barrel around US$10 per bbl until 2020,
 Revising 2019-2020 earnings forecast upwards with output headroom up to 100 barrel of oil equivalent per
day (BOEPD) vs. 1H18 level of 82 BOEPD.
 Capitalising on high oil price and low cost structure
 Buying opportunity from share price correction Where we differ: Higher gas lifting vs. oil means less earnings
 Maintain BUY with slightly higher TP of Rp1,530 volatility; further catalyst for share price re-rating. Besides its
higher core earnings visibility, we think that MEDC remains very
much underappreciated by the market. Its current valuation is
undemanding, trading at single digit FY18F PE, which largely
Price Relative
undervalues its profitable power business that generates EBITDA
of US$100m p.a. There are also further earnings upside from its
mining division that has now entered phase 7 development.
Key catalysts: better O&G lifting performance in 2H18. MEDC is

set to achieve higher oil and gas lifting activities in 2H18. Its
guidance is maintained at 85m barrels of oil equivalent per day
(MBOEPD) for this year.
Forecasts and Valuation
FY Dec (US$m) 2017A 2018F 2019F 2020F
Revenue 926 1,132 1,224 1,278 Valuation:
EBITDA 434 654 716 752 Maintain BUY rating with new TP of Rp1,530. We have a BUY
Pre-tax Profit 296 316 369 401 call with a DCF-based target price of Rp1,530, which implies
Net Profit 127 148 228 247
6.7x FY19F EV/EBITDA and 8.3x FY19F PE. Our DCF valuation
Net Pft (Pre Ex.) (35.7) 148 228 247
Net Pft Gth (Pre-ex) (%) 46.0 nm 54.2 8.6 assumes a WACC of 9.4% and terminal growth rate of 0%.
EPS (Rp) 107 125 192 209
EPS Pre Ex. (Rp) (30.1) 125 192 209 Key Risks to Our View:
EPS Gth Pre Ex (%) 59 nm 54 9 Execution risk. Our earnings forecast depends on MEDC’s
Diluted EPS (Rp) 107 125 192 209
Net DPS (Rp) 12.7 24.9 38.4 41.7 ability to execute both its existing businesses and newly
BV Per Share (Rp) 1,061 1,161 1,315 1,482 acquired assets. Our forecast is also subject to MEDC’s ability
PE (X) 7.1 6.1 3.9 3.6 to raise equity capital and repay debt.
PE Pre Ex. (X) nm 6.1 3.9 3.6
P/Cash Flow (X) 2.9 2.0 2.5 2.1
At A Glance
EV/EBITDA (X) 6.8 4.3 3.9 3.7
Net Div Yield (%) 1.7 3.3 5.1 5.5 Issued Capital (m shrs) 17,794
P/Book Value (X) 0.7 0.7 0.6 0.5 Mkt. Cap (Rpm/US$m) 13,523,669 / 903
Net Debt/Equity (X) 1.4 1.1 1.0 0.9 Major Shareholders (%)
ROAE (%) 11.9 11.2 15.5 14.9 PT Medco Daya Abadi 50.5
Earnings Rev (%): 0 0 0 Diamond Bridge Pte 21.5
Consensus EPS (Rp): 120 150 180 Free Float (%) 28.1
Other Broker Recs: B: 8 S: 0 H: 0 3m Avg. Daily Val (US$m) 2.3
Source of all data on this page: Company, DBSVI, Bloomberg Finance ICB Industry : Oil & Gas / Oil & Gas Producers
L.P
Page 40
ed: KK / sa:MA, CW, CS
Company Guide
Quarterly revenue trend Oil and gas lifting breakdown

Revenue (US$mn) Oil Gas
350.0
120%
328.1
300.0 289.7
288.9 100%
273.4
250.0 80%
220.2
206.5 209.9 210.3
198.8 194.0
193.3
200.0 186.4 189.5 191.6 183.5
170.9 60%
146.1
144.3 144.6
150.0 136.4
135.9
127.7
40%
100.0
20%
50.0
0.0
0%
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
Source: Company, DBS Source: Company, DBSVI
Profitability trend Quarterly gearing trend

GPM EBITDAM Net Debt to EBITDA (X) ‐ LHS EBITDA to Interest (X) ‐ RHS
70.0% 8 6
60.0% 7
5
6
50.0%
4
5
40.0%
4 3
30.0%
3
2
20.0%
2
1
10.0% 1
0.0% 0 0
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
Source: Company, DBSVI Source: Company, DBSVI
Quarterly oil and gas pricing performance since 1Q12 Quarterly EBITDA trend
Oil Gas EBITDA (US$mn)
180% 180.0
160.0 153.3
160% 148.0
140% 140.0
123.3
120% 120.0 108.2 110.6
100% 100.0 92.5 92.1
80% 80.0 66.2 68.6

60.8 57.4 60.4 58.4 65.0 56.0 60.5
60% 60.0 53.2 52.6
37.8 42.2 44.9
40% 40.0
24.8
20% 20.0
0% ‐
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
Source: Company, DBSVI Source: Company, DBSVI
Page 41
Company Guide
Oil production (MMBOPD)

CRITICAL DATA POINTS TO WATCH
Critical Factors
Conservative oil and gas lifting targets; priority on profitability.
Our forecast is in line with management’s guidance on oil and
gas lifting targets, as management adopts a more defensive
stance for its production plan. Management will only focus on
the most profitable shore blocks such as Rimau and South
Natuna Sea Block (SNSB) to keep its cash cost at the lowest
levels. We also see higher gas production volume going forward
as the Aceh gas field kicks off operations this year.
Gas production (BBUPD)
ASP trails our new oil price assumption. We are raising our
crude oil ASP to US$65 per barrel in FY18, followed by US$62
per barrel in FY19. Our crude oil ASP trend is largely in line with
our in-house oil price forecast of US$70-US$75 per barrel in
FY18, US$65-US$70 per barrel in 2019, and US$57 per barrel
thereafter. On the other hand, we see natural gas ASP being
more stable going forward, as MEDC’s gas pricing is based on
long term contracts (in some cases, inflation adjusted).
Keeping lifting cash cost low. We are lowering our lifting cash Crude oil ASP (US$/bbl)
cost forecast to US$10 per barrel. MEDC will halt its offshore
and other high cost blocks to further lower its cost structure this
year. We believe the low cash cost per barrel will sustain for the
next three years. SNSB has a low cost structure, while the Rimau
block should still be able to maintain its production momentum
without significant additional reserve enhancement
programmes in the medium term.
Steady capital expenditure. MEDC will slash its capital

expenditure (capex) further this year by around one-third of our
previous forecast. MEDC will focus only on the maintenance Lifting cost (US$/bbl)
capex for its existing projects and cut unnecessary spending on
exploration programmes. This will not harm MEDC’s business in
the long run, as it has remaining oil and gas reserves estimate of
17 years (reported 2P reserves 11 years + 6 years in our
forecast).
AMNT investment will provide earnings upside. Besides its oil

and gas lifting core business performance, MEDC’s net profit
will be boosted by its 41% stake in mining company Amman
Mineral Nusa Tenggara (AMNT). AMNT’s earnings will be
recognised as income from investment in associates. We prefer Capex (US$mn)
to be conservative and have assumed relatively flattish earnings
from AMNT, as its production expansion is subject to regulatory
changes (with regards to mineral ore export permit from the
government) as well as MEDC’s ability to develop its phase 7
concession and optimise its reserves.
Source: Company, DBSVI
Page 42
Company Guide
Appendix 1: A look at Company's listed history – what drives its share price?
MEDC’s share price vs. crude oil price vs. JCI performance Remarks
0.1 Underperformance 4.5 Red box. MEDC’s share price
on weak profitability Consistent earnings underperformed the JCI
and poor capital performance since 4.0 index and crude oil price
0.1 allocation 2Q16 to date led given its poor capital
the share price rally 3.5
allocation and weak
0.1 3.0 profitability trend during the
period.
2.5
0.1
2.0 MEDC’s share price gained
traction in early 2016, given
0.0 1.5 its massive operational
1.0 restructuring that led to low
0.0 New management appointment, focus lifting cash cost per barrel.
on efficiencies and operational 0.5 The share price continued to
restructuring rally after completing the
0.0 0.0
Jan‐09 Jan‐10 Jan‐11 Jan‐12 Jan‐13 Jan‐14 Jan‐15 Jan‐16 Jan‐17
SNSB and AMNT acquisitions
in early 2017.
MEDC share price (US$) ‐ LHS Crude oil price performance ‐ RHS JCI performane ‐ RHS
*share price in US dollar currency
MEDC ’s share price performance vs. JCI since January 2009 Remarks
Share price (US$) Profitability EBITDAM (%) The new management has set
PX_LAST EBITDA_TO_REVENUE
improvement coupled its focus on lowering MEDC’s
with the stronger lifting cash cost per BOE to
Overseas block lifting performance led
0.2 development dragged 110
around US$10 per BOE, in
the share price
profitability despite Profitability contracted order to cope with the
during the crude oil performance 100
the still high crude oil 90
impending crude oil price
price trend price downtrend, volatility.
followed by share 80
0.1
price 70
60
The efficiency gains, coupled
50
with volume expansion post-
40
SNSB acquisition completion,
0.1
30
have led to a YTD share price
20
rally.
10
0.0 0
Jan‐09
Nov‐09
Jan‐14
Nov‐14
Sep‐10
May‐12
Sep‐15
May‐17
Jul‐11
Mar‐13
Jul‐16
MEDC’s share price (Rp) vs. NPAT performance Remarks

Share price (Rp) NPAT (US$m) A stronger core business
performance, as seen in its
NPAT Share price
EBITDA performance, has also
1,000 200 boosted its net profit after tax
900 and increased its earnings
150
visibility. Further earnings
800
100 growth will come from MEDC’s
700 gold and copper mining assets
600 50 under AMNT and the
development of the power
500 0
business under MPI.
400 (50)
300 An improving earnings visibility
(100) bodes well for MEDC’s further
200
(150)
re-rating.
100
0 (200) Note that 4Q17 performance
was affected by one-off items
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
related to assets held for sale

adjustment.
Source: Company, Bloomberg Finance L.P., DBSVI
Page 43
Company Guide
Leverage & asset turnover (x)

Balance Sheet:
Balance sheet is solid, no liquidity issues. We do not see any
liquidity issues for MEDC, as it has US$439m cash balance as at
end-June 2018, relatively low net debt to EBITDA of 3.51x.
Moreover, we also expect its EBITDA to interest expense to
remain above 2.0x going forward, given MEDC’s low operating
cost structure.

Crude oil price trend underpins sentiment. MEDC’s share price
trend is in line with the global crude oil price outlook, which is
Capital expenditure
one of the key drivers of MEDC’s overall drilling activities,
expansion strategy and earnings growth. Its share price tumbled
in 2015 in tandem with crude oil prices, although it has
rebounded in the past two years on the improving oil price
trend. Going forward, we believe the EBITDA and NPAT growth
outlook could act as MEDC’s key re-rating catalysts. EBITDA will
reflect MEDC's core oil and gas lifting segments, while core
NPAT will show the fruits of MEDC's newly acquired AMNT
mining assets in terms of income from investment in associates
(equity method investment).
ROE (%)
Key Risks:
Crude oil price. If crude oil price dips below our price range,
the impact on Indonesia’s oil and gas industry could be larger
than expected. This would translate into lower ASP for MEDC
and lead to weaker than expected earnings growth. The crude
oil price outlook also will determine MEDC's future production
volume target, given that some blocks (especially offshore)
require crude oil price to sustain above US$60 per barrel to be
profitable.
Execution risks. Our earnings forecast also depends on MEDC’s Forward EV/EBITDA Band (x)
execution capability to maintain its cash cost per barrel at low (x)
levels despite the SNSB offshore assets acquisition last year, 7.0
enhance its depleted existing reserves and achieve successful +2 stdev
6.0
exploration investments. Our earnings forecast also depends
on MEDC’s ability to unlock AMNT’s remaining copper and 5.0 +1 stdev
gold reserves.
4.0 Average
Assumption risk. Our new Target Price (TP) includes several 3.0 -1 stdev
assumptions such as Medco Power consolidation, solid mining 2.0 -2 stdev

operational performance and stable lifting cash cost per barrel, Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
even as we include the offshore SNSB assets.
PB Band (x)
Company Background
MEDC is an integrated energy company that is in involved in oil
and gas exploration and production activities in Indonesia and
internationally.
Page 44
Company Guide
Key Assumptions
FY Dec 2016A 2017A 2018F 2019F 2020F
Oil production (MMBOPD) 19.8 27.0 28.4 29.8 30.7
Gas production (BBUPD) 132 190 200 210 216
Crude oil ASP (US$/bbl) 45.0 50.0 65.0 65.0 63.0
Lifting cost (US$/bbl) 12.0 10.0 10.0 10.0 10.0
Capex (US$mn) (43.9) (313) (212) (323) (324)
Segmental Breakdown
FY Dec 2016A 2017A 2018F 2019F 2020F
Revenues (US$m)
Oil and gas sales 583 855 957 1,019 1,044
Chemicals and other 0.0 0.0 17.0 17.0 17.0
Services 7.00 3.00 17.3 17.3 17.3
Power division 0.0 67.5 140 170 200
Others 0.0 0.0 0.0 0.0 0.0
Total 590 926 1,132 1,224 1,278
Operating profit (US$m)
Oil and gas sales 218 232 340 381 406
Chemicals and other 0.0 0.0 0.0 6.80 6.80
Services 0.0 2.80 1.20 6.90 6.90
Power division 0.0 0.0 0.0 0.0 0.0
Others 0.0 0.0 0.0 0.0 0.0
Total 218 235 342 395 419
Oil and gas sales 37.4 27.1 35.6 37.4 38.9
Chemicals and other N/A N/A 0.0 39.8 39.8
Services 0.0 93.0 6.9 39.8 39.8
Power division N/A 0.0 0.0 0.0 0.0
Others N/A N/A N/A N/A N/A
Total 37.0 25.4 30.2 32.3 32.8
Income Statement (US$m)

FY Dec 2016A 2017A 2018F 2019F 2020F
Revenue 590 926 1,132 1,224 1,278
Cost of Goods Sold (341) (505) (412) (440) (466)
Gross Profit 249 421 720 784 812
Other Opng (Exp)/Inc (96.5) (151) (203) (219) (229)
Operating Profit 153 269 517 565 584
Other Non Opg (Exp)/Inc 10.5 8.70 0.0 0.0 0.0
Associates & JV Inc (27.0) (37.0) (20.0) (20.0) (20.0)
Net Interest (Exp)/Inc (92.0) (108) (181) (176) (163)
Exceptional Gain/(Loss) 251 163 0.0 0.0 0.0
Pre-tax Profit 295 296 316 369 401
Tax (63.3) (140) (158) (129) (140)
Minority Interest (2.3) (4.7) (10.3) (12.0) (13.0)
Preference Dividend (44.7) (23.8) 0.0 0.0 0.0
Net Profit 185 127 148 228 247
Net Profit before Except. (66.1) (35.7) 148 228 247
EBITDA 257 434 654 716 752
Growth
Revenue Gth (%) 2.6 56.9 22.2 8.1 4.5
EBITDA Gth (%) 13.3 68.7 50.5 9.6 5.0
Opg Profit Gth (%) 45.2 76.3 92.0 9.2 3.3
Net Profit Gth (Pre-ex) (%) (178.0) 46.0 nm 54.2 8.6
Margins & Ratio
Gross Margins (%) 42.3 45.5 63.6 64.1 63.6
ROAE (%) 23.3 11.9 11.2 15.5 14.9
ROA (%) 5.7 2.9 2.8 4.2 4.4
ROCE (%) 4.1 3.8 6.0 8.1 8.0
Div Payout Ratio (%) 24.8 11.9 20.0 20.0 20.0
Page 45
Company Guide
Quarterly / Interim Income Statement (US$m)

FY Dec 2Q2017 3Q2017 4Q2017 1Q2018 2Q2018
Revenue 193 194 328 289 290

Cost of Goods Sold (100) (92.0) (208) (137) (121)
Gross Profit 93.1 102 121 152 168
Other Oper. (Exp)/Inc (37.8) (33.4) (49.4) (39.7) (38.3)
Operating Profit 55.3 68.6 71.2 112 130
Other Non Opg (Exp)/Inc 49.9 129 (23.7) 0.70 1.00
Associates & JV Inc (12.1) (21.4) (13.5) 0.90 (10.6)
Net Interest (Exp)/Inc (23.8) (49.7) (12.7) (46.1) (40.5)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
Pre-tax Profit 69.3 127 21.2 67.4 79.8
Tax (27.1) (41.7) (37.4) (40.9) (55.3)
Minority Interest (2.0) (0.2) (0.9) (4.4) (5.4)
Net Profit 36.7 84.6 (37.2) 21.6 19.8
Net profit bef Except. 36.7 84.6 (37.2) 21.6 19.8
EBITDA 92.1 111 123 148 153
Growth
Revenue Gth (%) (8.1) 0.4 69.1 (11.9) 0.3
EBITDA Gth (%) (14.9) 20.1 11.5 20.0 3.6
Opg Profit Gth (%) (25.5) 24.1 3.7 57.2 16.2
Net Profit Gth (Pre-ex) (%) (14.8) 130.7 (144.0) (158.1) (8.4)
Margins
Gross Margins (%) 48.2 52.6 36.7 52.5 58.1
Net Profit Margins (%) 19.0 43.6 (11.3) 7.5 6.8
Balance Sheet (US$m)

FY Dec 2016A 2017A 2018F 2019F 2020F
Net Fixed Assets 921 1,108 1,183 1,355 1,510

Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0
Other LT Assets 1,542 2,078 2,078 2,078 2,078
Cash & ST Invts 231 661 874 858 920
Inventory 70.3 88.9 33.8 36.0 38.2
Debtors 182 196 153 166 173
Other Current Assets 651 1,029 1,029 1,029 1,029
Total Assets 3,597 5,161 5,350 5,521 5,748
ST Debt 411 407 500 500 500

Creditor 65.3 140 78.9 84.3 89.2
Other Current Liab 384 747 858 829 840
LT Debt 1,522 2,182 2,100 2,100 2,100
Other LT Liabilities 324 283 283 283 283
Shareholder’s Equity 888 1,258 1,376 1,558 1,756
Minority Interests 3.00 145 156 167 180
Total Cap. & Liab. 3,597 5,161 5,350 5,521 5,748
Non-Cash Wkg. Capital 453 428 279 317 311

Net Cash/(Debt) (1,702) (1,928) (1,726) (1,742) (1,680)
Asset Turnover (x) 0.2 0.2 0.2 0.2 0.2
Current Ratio (x) 1.3 1.5 1.5 1.5 1.5
Quick Ratio (x) 0.5 0.7 0.7 0.7 0.8
Net Debt/Equity (X) 1.9 1.4 1.1 1.0 0.9
Capex to Debt (%) 2.3 12.1 8.1 12.4 12.5
Z-Score (X) 0.9 0.9 0.9 1.2 1.2
Page 46
Company Guide
Cash Flow Statement (US$m)

FY Dec 2016A 2017A 2018F 2019F 2020F
Pre-Tax Profit 295 296 316 369 401

Dep. & Amort. 121 127 137 152 168
Tax Paid (63.3) (140) (158) (129) (140)
Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0
Chg in Wkg.Cap. (207) 66.4 149 (38.2) 6.60
Other Operating CF 0.0 (41.2) 0.0 0.0 0.0
Net Operating CF 146 307 443 353 435
Capital Exp.(net) (43.9) (313) (212) (323) (324)
Other Invts.(net) (747) (496) 0.0 0.0 0.0
Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0
Other Investing CF 0.0 (40.5) 0.0 0.0 0.0
Net Investing CF (791) (849) (212) (323) (324)
Div Paid (45.9) (15.1) (29.5) (45.6) (49.5)
Chg in Gross Debt 353 656 10.9 0.0 0.0
Capital Issues 64.2 150 0.0 0.0 0.0
Other Financing CF 0.0 222 0.0 0.0 0.0
Net Financing CF 371 1,012 (18.7) (45.6) (49.5)
Currency Adjustments (25.8) 0.0 0.0 0.0 0.0
Chg in Cash (299) 470 213 (15.7) 61.6
Opg CFPS (Rp) 396 203 249 330 362
Free CFPS (Rp) 115 (4.8) 195 25.2 93.7
Source: DBSVI
Analyst: William Simadiputra
Page 47
Company Guide
DBSVI recommendations are based an Absolute Total Return* Rating system, defined as follows:
Completed Date: 6 Sep 2018 14:59:27 (WIB)

Dissemination Date: 6 Sep 2018 16:11:10 (WIB)
Sources for all charts and tables are DBSVI unless otherwise specified.
This report is prepared by PT DBS Vickers Sekuritas Indonesia (''DBSVI''). This report is solely intended for the clients of DBS Bank Ltd, its respective
connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form
or by any means or (ii) redistributed without the prior written consent of PT DBS Vickers Sekuritas Indonesia (''DBSVI'').
Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,
the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other
factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or
warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without
notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific
investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees
only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial
advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit)
arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not
to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons
associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have
positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and
other banking services for these companies.
Page 48
Company Guide
DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public
offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage
in market-making.
1
primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate does not serve as an officer of the
issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real
estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the
2
his associate does not have financial interests in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has
DBS Group.

1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS'') or their subsidiaries and/or other affiliates do not have a
proprietary position in the securities recommended in this report as of 31 Jul 2018.
2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.
Compensation for investment banking services:

3. DBS Bank Ltd, DBS HK, DBSVS their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months
for investment banking services from Medco Energi Internasional as of 31 Jul 2018.
4. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of
securities for Medco Energi Internasional in the past 12 months, as of 31 Jul 2018.
5. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a
manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further
information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document
should contact DBSVUSA exclusively.
Disclosure of previous investment recommendation produced:

6. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other
investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12
months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by
DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.
1
2
Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or
a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This
term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or
new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.
Page 49
Thailand Company Guide
Bangchak Petroleum Pcl
Version 7 | Bloomberg: BCP TB | Reuters: BCP.BK Refer to important disclosures at the end of this report
DBS Group Research . Equity 16 Aug 2018
BUY Core earnings bottomed out

Last Traded Price ( 15 Aug 2018): Bt35.50 (SET : 1,676.29) Reiterate BUY with new TP of Bt39. Given the lower-than-
Price Target 12-mth: Bt39.00 (10% upside) (Prev Bt40.00) expected core earnings performance in 2Q18 from the soft
Analyst GRM, we revised down our earnings forecast by 13%/14% in
Nantika WIANGPHOEM, CFA +66 28577836 nantikaw@th.dbs.com
this year and next year to reflect more conservative view on the
crack spreads. However, we believe the market sentiment on
What’s New the stock should improve as the current price has priced in all
negative factors and it has a better earnings outlook for next
• 1H18 earnings came in at Bt2.15bn (-30% y-o-y);
year. Trading at attractive valuations and offering dividend
mainly affected by the lower crude run from 45-day
yields of 6-7% during 2017-19F, we maintain our BUY call with
turnaround and lower crack spreads
a new TP of Bt39.
• 2H18 outlook is brighter from improving spreads and 2018’s firm target with long-term outlook still intact. We expect
resumption of refinery plant BCP’s base gross refining margin (GRM) to inch down from
• Revised down earnings forecast by 13%/14% US$6.4/bbl in 2017 to US$6.1/bbl in 2018F while its marketing
margin stayed at Bt0.77/litre (we expect this be sustained in
• Reiterate BUY with lower TP of Bt39 2019). But given the planned shutdown in this year, we expect
the crude run to drop from 111kbd to 101kbd in this year. In
the longer term, we expect BCP to resume its earnings growth
Price Relative that will be driven by higher crude run and wider GRM. Also, its
oil marketing and solar power businesses should continue to
generate stable cash flows, which is the key factor to reduce
BCP’s earnings volatility in the longer term.
Near-term catalyst to drive the share price. BCP is planning to
launch the IPO of its 60%-owned subsidiary, BBGI and expect
the IPO to take place in 3Q18 which will be considered as a key
near-term catalyst to boost the share price.
Forecasts and Valuation Valuation:
FY Dec (Btm) 2016A 2017A 2018F 2019F
BCP’s valuation is undemanding at 8.2x 2018 PE, compared
Revenue 144,705 171,304 171,653 179,693
EBITDA 10,990 12,688 12,306 12,632 with 10x average for regional peers. We also expect the
Pre-tax Profit 5,418 6,446 6,167 6,584 company to maintain its dividend yield of 6-7% for 2018-19F.
Net Profit 4,773 5,778 4,799 5,108 Our TP of Bt39 is derived from 1.2x PBV for the oil-related
Net Pft (Pre Ex.) 4,126 5,433 4,405 5,108
businesses and DCF-based valuation for the solar business.
Net Pft Gth (Pre-ex) (%) (10.3) 31.7 (18.9) 16.0
EPS (Bt) 3.47 4.20 3.49 3.71 Key Risks to Our View:
EPS Pre Ex. (Bt) 3.00 3.95 3.20 3.71 Volatile oil price is the key risk. Refiners’ profit is volatile due to
EPS Gth Pre Ex (%) (10) 32 (19) 16 inventory gains/losses, in line with changes in crude oil prices
Diluted EPS (Bt) 3.47 4.20 3.49 3.71
each quarter. BCP mitigates this volatility by hedging. BCP has
Net DPS (Bt) 2.00 2.15 1.80 1.90
BV Per Share (Bt) 28.7 33.2 34.6 36.5 a policy of hedging up to 30% of its output.
PE (X) 10.2 8.5 10.2 9.6
PE Pre Ex. (X) 11.8 9.0 11.1 9.6 Issued Capital (m shrs)
At A Glance 1,377
P/Cash Flow (X) 3.7 3.6 4.8 5.2 Mkt. Cap (Btm/US$m) 48,881 / 1,467
EV/EBITDA (X) 6.4 6.8 6.7 6.1 Major Shareholders (%)
Net Div Yield (%) 5.6 6.1 5.1 5.4 PTT 27.2
P/Book Value (X) 1.2 1.1 1.0 1.0
Ministry of Finance 10.0
Net Debt/Equity (X) 0.4 0.6 0.5 0.4
ROAE (%) 12.7 13.6 10.3 10.4 Thai NVDR 4.6
Free Float (%) 62.7
Earnings Rev (%): (13) (14)
Consensus EPS (Bt): 3.98 4.39 3m Avg. Daily Val (US$m) 3.9
Other Broker Recs: B: 8 S: 1 H: 7 ICB Industry : Oil & Gas / Oil & Gas Producers
Source of all data on this page: Company, DBSVTH, Bloomberg Finance
L.P
Page 50
ed: TH / sa: CW, CS
Company Guide
WHAT’S NEW
Look for better performance from 2H18
Recap 1H18 earnings performance: BCP's 1H18 net profit Recently, the company has entered into the agreement through
weakened by 30% y-o-y to Bt2,153m. Behind the soft y-o-y its subsidiary to subscribe to the new shares of OKEA (engages
profit was mainly lower average crude run of 88KBD vs 112KBD in E&P business in Norway) in the proportion of up to 90% of
in 1H17, lower crack spread of Gasoline (-11% y-o-y) and Fuel the increased capital which ultimately, BCPR will hold
oil (-90% y-o-y) as well as the lower marketing margin from approximately 45% of total OKEA shares. This transaction is in
Bt0.83/litre to Bt0.79/litre. In 1H18, BCP also booked an extra line with the company’s strategy to strengthen its natural
item of Bt394m which mainly consisted of an inventory gain of resources business. In addition, the oil of OKEA (Draugen and
Bt786m partially offset by the impairment loss of Bt412m. Gjoa) are able to produce the light and sweet crude which will
Stripping out the extra items, BCP would have recorded core enable the company to capture the benefit of expected jump in
earnings profit of Bt1,759m (-46% y-o-y). light and sweet crude once IMO is enforced in 2020.
2H18 outlook is brighter: With normal operation at its refinery Revised down earnings forecast by 13%/14% in FY18/FY19:
and improving crack spreads from lower crude premiums, we We have revised down our earnings forecast by 13% in FY18
expect the upward earnings momentum to resume in 2H18F. and 14% in FY19 to reflect a more conservative view after the
Management has guided that its refinery would operate back to weak 2Q18 results. We have trimmed the GRM margin by
the normal operation at an average capacity of 110kbd in US$0.3/bbl given the weaker-than-expected crack spreads of
2H18. Also, we expect the industry’s GRM to recover in late gasoline (c.17% of BCP’s production) and fuel oil (c.12% of
August-September during the annual shutdown of refineries in BCP’s production). Hence, our TP inched down from Bt40 to
the US prior to the winter season and the high seasonality of Bt39. Our TP of Bt39 is derived from 1.2x P/BV for the oil-
mid distillates. related businesses and DCF-based valuation for the solar
business. In terms of valuation, we also find that BCP is trading
Over the long term, BCP is more focused on diversifying its at attractive valuations and offering dividend yields of 6-7%
revenue source including having more exposure to E&P business during 2017-19F. Hence, we maintain our BUY call with a new
(by acquiring producing or near-producing assets and operating TP of Bt39.
with partners). BCP targets to increase its oil capacity from the
current 2KBD to 15-20KBD by 2023 (which 50:50 of oil and gas
proportion).
Quarterly / Interim Income Statement (Btm)

1H17 1H18 y-o-y
Revenue 87,534 88,997 2%
Cost of Goods Sold (80,434) (82,597) 3%
Gross Profit 7,100 6,400 -10%
Other Oper. (Exp)/Inc (3,089) (3,468) 12%
Operating Profit 4,011 2,933 -27%
Other Non Opg (Exp)/Inc 505 268 -47%
Associates & JV Inc 71.6 114.7 60%
Net Interest (Exp)/Inc (693) (739) 7%
Exceptional Gain/(Loss) (178) 394 -321%
Pre-tax Profit 3,716 2,971 -20%
Tax (372) (476) 28%
Minority Interest (267) (341) 28%
Net Profit 3,076 2,153 -30%
Net profit bef Except. 3,255 1,759 -46%
EBITDA 7,048 5,686 -19%
Margins (%)
Gross Margins 8.1 7.2
Opg Profit Margins 4.6 3.3
Net Profit Margins 3.5 2.4
Source of all data: Company, DBSVTH
Page 51
Company Guide
Crude run (kbd)
CRITICAL DATA POINTS TO WATCH
Critical Factors
Crude run to be ramped up in 2019. We expect BCP’s crude
run to remain high at 101kbd in 2018F and increase to 106kbd
in 2019F. The company is able to resume its refinery back to
106kbd which is above its 2000-2014 average of 87kbd
because of the new crude distillate unit (CDU), which was
installed in 2014 to replace the one damaged by fire in 2012.
The new CDU increases BCP’s crude distillation capacity to
Base GRM (US$/bbl)
120kbd. So far, BCP had optimised its crude run to capture
favourable GRMs in 2017 but its crude run declined in 2018F
due to planned maintenance shutdowns in 2Q18.
GRM should normalise in 2018-19F after its peak in 2015. GRM

is the critical factor for BCP’s earnings from oil refining business.
We expect its abnormally high GRM in 2015 to ease to more
sustainable levels at US$6-6.5/bbl in 2018-19F. There would be
upside from inventory gains in 2018 from higher crude oil prices
in 2018. Nonetheless, we expect GRM to be affected by
capacity additions in the region, especially for middle distillate
Marketing margin (Bt/litre)
products.
Oil marketing business will continue to benefit from higher oil

demand in domestic market. BCP’s marketing margins should
be sustainable at Bt0.7-0.8/litre, after registering a strong
Bt0.77/litre in 2017. The outlook for BCP’s marketing business is
solid, given its strong foothold in the retail oil market (with the
second largest market share after PTT and has continued
gaining more market share). Stable earnings from the marketing
business will be able to offset volatile profits from the oil
refining segment. Total capacity - Solar (MW) YE
More equity based electricity capacity to be added into

portfolio. BCP's capacity will continue to increase after its
subsidiary, BCPG Plc (BCPG) acquired a 33% stake in Star
Energy Group Holdings Pte. Ltd. (geothermal power plant in
Indonesia) with equity MW of 158MW in July 2017, resulting in
higher equity capacity from 145 MW in 2016 to 332 MW in
2017. Management is keen on expanding the total capacity of
the renewable power business to 500MW by 2020. Note that
BCPG was listed on the stock market in September 2016.
EBITDA contribution - Solar (Bt, mn)
EBITDA contribution from the solar business will gradually
increase from the new capacity in Japan. We estimate EBITDA
contribution from the solar business will be steady at Bt4bn p.a.
for the next three years, and account for more than 20% of
group EBITDA in 2018-19F. The EBITDA contribution from the
solar power business will gradually increase when new capacity
of the business in Japan comes on stream from 2018 onwards.
Source: Company, DBSVTH
Page 52
Company Guide
Leverage & Asset Turnover (x)

Balance Sheet:
Improving financials. BCP’s financial position is expected to
improve gradually, as its D/E ratio drops from 0.9x in 2015 to
0.6-0.7x by 2018-19F, driven by steady profit growth – thanks
to stable earnings from the marketing and solar power
businesses. Asset turnover could dip again in 2018E, following a
45-day planned maintenance shutdown to further improve
refinery efficiency under its 3E (Efficiency, Energy and
Environment) improvement programme. The programme will be
implemented over the next few years up to 2020, when its
refinery is upgraded to one of the most complex in Thailand.
Capital Expenditure

Attractive valuation and yield. BCP is trading at less than 8x PE
based on forecast earnings for the next three years, compared
with >13x for regional peers. And the stock offers good
dividend yields of 5-6% over the same period. This could attract
investors who are looking for beneficiaries of rising oil demand
in the domestic market. BCP’s profit will be less volatile than
that of oil refineries which do not have retail outlets. The stable
cash flow from its solar business could also cushion the impact
of volatile oil prices. ROE (%)
Recurring income from alternative energy business. BCP should

be able to reap the benefit from the expansion of renewable
power business of its subsidiary, BCPG. In addition to its existing
solar power businesses in Thailand and Japan, BCPG has
recently announced the acquisition of a wind power generation
asset in the Philippines. We believe that earnings contribution
from renewable power business would continue to increase its
role in BCP’s profit and cash flow.
Key Risks: Forward PE Band (x)

Earnings exposed to crude oil volatility. Refiners’ earnings are
volatile due to inventory gains/losses, following changes in
crude oil prices each quarter. BCP mitigates the volatility by
hedging and has a good track record, booking hedging gains
over the past seven quarters. The company has a policy of
hedging up to 30% of its output. Another risk is impairment
charge at its E&P business if oil prices enter a downtrend.
Company Background
BCP operates a 120-kbd oil refinery located in Bangkok. Its
refined oil products are distributed via petrol stations under its PB Band (x)
retail marketing segment. BCP also invests in alternative
energy, mainly solar and bio fuel.
Page 53
Company Guide
Key Assumptions
FY Dec 2015A 2016A 2017A 2018F 2019F
Crude run (kbd) 113 101 111 101 106
Base GRM (US$/bbl) 9.05 5.99 6.38 6.09 6.46
Marketing margin (Bt/litre) 0.76 0.79 0.77 0.77 0.77
Total capacity - Solar 118 125 130 134 134
(MW)
EBITDAYE contribution - 3,005 2,559 3,088 3,470 3,801
Solar (Bt, mn)
Income Statement (Btm)

FY Dec 2015A 2016A 2017A 2018F 2019F
Revenue 151,140 144,705 171,304 171,653 179,693
Gross Profit 11,454 11,896 12,709 12,165 12,607
Other Non Opg (Exp)/Inc 543 527 1,241 903 1,083
Associates & JV Inc 12.4 21.0 815 856 1,094
Exceptional Gain/(Loss) (449) 647 345 394 0.0
Pre-tax Profit 4,770 5,418 6,446 6,167 6,584
Tax (673) (689) (40.9) (678) (701)
Minority Interest 53.4 44.0 (627) (690) (775)
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net Profit 4,151 4,773 5,778 4,799 5,108
Net Profit before Except. 4,600 4,126 5,433 4,405 5,108
EBITDA 11,542 10,990 12,688 12,306 12,632
Growth
Revenue Gth (%) (17.4) (4.3) 18.4 0.2 4.7
EBITDA Gth (%) 152.1 (4.8) 15.5 (3.0) 2.7
Opg Profit Gth (%) 9,854.4 (9.1) (3.7) (3.6) 2.3
Net Profit Gth (Pre-ex) (%) 671.7 (10.3) 31.7 (18.9) 16.0
Margins & Ratio
Gross Margins (%) 7.6 8.2 7.4 7.1 7.0
ROAE (%) 12.1 12.7 13.6 10.3 10.4
ROA (%) 5.2 5.2 5.4 4.1 4.3
ROCE (%) 4.3 3.4 4.4 3.2 4.0
Div Payout Ratio (%) 66.3 57.7 51.2 51.6 51.2
Page 54
Company Guide
Quarterly / Interim Income Statement (Btm)

FY Dec 2Q2017 3Q2017 4Q2017 1Q2018 2Q2018
Revenue 43,838 39,009 44,761 44,296 44,702

Gross Profit 3,373 3,559 2,049 3,398 3,002
Operating Profit 1,726 1,774 (288) 1,729 1,204
Other Non Opg (Exp)/Inc 280 283 453 75.6 193
Associates & JV Inc 54.0 420 324 92.2 22.5
Net Interest (Exp)/Inc (339) (379) (380) (365) (374)
Exceptional Gain/(Loss) (685) (1,232) 1,756 28.9 365
Pre-tax Profit 1,036 865 1,865 1,561 1,410
Tax 109 630 (298) (223) (253)
Minority Interest (153) (179) (181) (191) (150)
Net Profit 993 1,316 1,386 1,146 1,007
Net profit bef Except. 1,678 2,549 (371) 1,117 642
EBITDA 3,310 3,753 1,886 3,135 2,551
Growth
Revenue Gth (%) 0.3 (11.0) 14.7 (1.0) 0.9
EBITDA Gth (%) (11.5) 13.4 (49.7) 66.2 (18.6)
Opg Profit Gth (%) (24.5) 2.8 (116.3) (699.4) (30.4)
Net Profit Gth (Pre-ex) (%) 6.4 51.9 (114.5) (401.5) (42.6)
Margins
Gross Margins (%) 7.7 9.1 4.6 7.7 6.7
Opg Profit Margins (%) 3.9 4.5 (0.6) 3.9 2.7
Balance Sheet (Btm)

FY Dec 2015A 2016A 2017A 2018F 2019F
Net Fixed Assets 40,044 46,462 48,049 45,671 42,136
Invts in Associates & JVs 774 840 14,400 14,999 15,765
Other LT Assets 7,324 10,331 15,370 15,392 15,414
Cash & ST Invts 12,390 21,006 10,325 16,522 19,757
Inventory 13,945 14,560 15,720 16,563 17,417
Debtors 5,234 6,022 7,511 7,054 7,385
Total Assets 81,942 101,783 114,110 118,942 120,619
ST Debt 1,026 9,141 6,264 6,264 6,264

Creditor 4,994 8,766 10,016 10,564 11,099
LT Debt 32,632 28,445 34,639 36,221 34,003
Minority Interests 502 4,366 6,482 7,172 7,947
Total Cap. & Liab. 81,942 101,783 114,110 118,942 120,619
Non-Cash Wkg. Capital 11,947 6,210 8,360 8,203 8,857

Net Cash/(Debt) (21,268) (16,581) (30,578) (25,963) (20,511)
Asset Turnover (x) 1.9 1.6 1.6 1.5 1.5
Current Ratio (x) 3.2 1.7 1.5 1.8 1.9
Quick Ratio (x) 1.7 1.0 0.7 1.0 1.1
Net Debt/Equity (X) 0.6 0.4 0.6 0.5 0.4
Capex to Debt (%) 13.6 24.6 12.3 6.8 3.7
Z-Score (X) 3.5 2.7 2.9 3.0 3.0
Page 55
Company Guide
Cash Flow Statement (Btm)

FY Dec 2015A 2016A 2017A 2018F 2019F
Pre-Tax Profit 4,770 5,418 6,446 6,167 6,584

Dep. & Amort. 4,708 4,734 5,135 5,248 5,035
Tax Paid (673) (689) (40.9) (678) (701)
Assoc. & JV Inc/(loss) (12.4) (21.0) (815) (856) (1,094)
Chg in Wkg.Cap. 1,773 5,737 (2,150) 157 (654)
Other Operating CF 1,586 (2,002) 4,966 148 301
Net Operating CF 12,153 13,178 13,541 10,186 9,470
Capital Exp.(net) (4,591) (9,250) (5,023) (2,870) (1,500)
Other Invts.(net) 0.0 0.0 0.0 0.0 0.0
Invts in Assoc. & JV (12.4) (65.3) (13,561) (599) (766)
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0
Other Investing CF (6,739) 1,161 (377) 0.0 0.0
Net Investing CF (11,343) (8,154) (18,960) (3,470) (2,266)
Div Paid (2,039) (2,754) (3,311) (2,792) (2,527)
Chg in Gross Debt 3,460 3,929 3,317 1,582 (2,218)
Capital Issues 0.0 0.0 0.0 0.0 0.0
Other Financing CF (2,313) 5,216 (3,767) 690 775
Net Financing CF (893) 6,391 (3,761) (520) (3,970)
Currency Adjustments 0.0 0.0 0.0 0.0 0.0
Chg in Cash (82.4) 11,415 (9,181) 6,197 3,235
Opg CFPS (Bt) 7.54 5.40 11.4 7.28 7.35
Free CFPS (Bt) 5.49 2.85 6.19 5.31 5.79
Source: DBSVTH
Analyst: Nantika WIANGPHOEM, CFA
THAI-CAC Certified
Corporate Governance CG Rating (as of Oct 2017)
THAI-CAC is Companies participating in Thailand's Private Sector Score Description

Collective Action Coalition Against Corruption programme (Thai Declared Companies that have declared their intention to join CAC
CAC) under Thai Institute of Directors (as of May 2018) are Certified Companies certified by CAC.
categorised into:
Score Range Number of Logo Description
Corporate Governance CG Rating is based on Thai Institute of 90-100 Excellent
Directors (IOD)’s annual assessment of corporate governance
practices of listed companies. The assessment covers 235 criteria 80-89 Very Good
in five categories including board responsibilities (35% weighting), 70-79 Good
disclosure and transparency (20%), role of stakeholders (20%),
equitable treatment of shareholders (10%) and rights of 60-69 Satisfactory
shareholders (15%). The IOD then assigns numbers of logos to
50-59 Pass
each company based on their scoring as follows:
<50 No logo given N/A
Page 56
Company Guide
DBSVTH recommendations are based an Absolute Total Return* Rating system, defined as follows:
Completed Date: 16 Aug 2018 06:23:18 (THA)

Dissemination Date: 16 Aug 2018 06:50:55 (THA)
Sources for all charts and tables are DBSVTH unless otherwise specified.
This report is prepared by DBS Vickers Securities (Thailand) Co Ltd (''DBSVTH''). This report is solely intended for the clients of DBS Bank Ltd, its
respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in
any form or by any means or (ii) redistributed without the prior written consent of DBS Vickers Securities (Thailand) Co Ltd (''DBSVTH'').
Page 57
Company Guide
in market-making.
primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate 1 does not serve as an officer of the
DBS Group.

1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS'') or their subsidiaries and/or other affiliates have a proprietary
position in Bangchak Petroleum Pcl recommended in this report as of 31 Jul 2018.

1
2
Page 58
Oil & Gas
DBS Bank, DBS HK, DBSVI, DBSVTH recommendations are based an Absolute Total Return* Rating system, defined as follows:
Completed Date: 6 Sep 2018 08:46:48 (SGT)

Dissemination Date: 6 Sep 2018 10:10:21 (SGT)
Sources for all charts and tables are DBS Bank, DBS HK, DBSVI, DBSVTH unless otherwise specified.
This report is prepared by DBS Bank, DBS Bank (Hong Kong) Limited (''DBS HK''), PT DBS Vickers Sekuritas Indonesia (''DBSVI''), DBS Vickers
Securities (Thailand) Co Ltd (''DBSVTH''). This report is solely intended for the clients of DBS Bank Ltd, its respective connected and associated
redistributed without the prior written consent of DBS Bank, DBS HK, DBSVI, DBSVTH.
Page 59
Oil & Gas
in market-making.
primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate 1 does not serve as an officer of the
DBS Group.

1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS'') or their subsidiaries and/or other affiliates have proprietary
positions in CNOOC Ltd, PetroChina, China Petroleum & Chem, Bangchak Petroleum Pcl, Sembcorp Marine, Sembcorp Industries, Keppel
Corporation, PTT Exploration & Production, recommended in this report as of 31 Jul 2018.

3. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months
for investment banking services from Medco Energi Internasional, Sembcorp Industries, as of 31 Jul 2018.
4. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of
securities for Medco Energi Internasional, in the past 12 months, as of 31 Jul 2018.

Directorship/trustee interests:
7. Danny Teoh Leong Kay, a member of DBS Group Holdings Board of Directors, is a Director of Keppel Corporation as of 30 Jun 2018.
1
2
Page 60
Oil & Gas
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Insights Bullish Near Term Outlook

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Insights Bullish Near Term Outlook

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Regional Industry Focus

Regional Oil and Gas

DBS Group Research . Equity 6 Sep 2018

Bullish near-term outlook

ed: TH / sa:YM, PY, CS

Oil price trends

US$ per bbl

DBS forecast for Brent:

Source: Bloomberg Finance L.P., DBS Bank Brent WTI

Source: Bloomberg Finance L.P., DBS Bank

Production change of select OPEC members from May to July 2018

Source: Bloomberg Finance L.P., DBS Bank

OPEC spare capacity trends and forecast

Source: US Energy Information Administration (EIA), DBS Bank

US Crude Oil Inventories (mmbbls)

Source: Bloomberg Finance L.P., DBS Bank

OECD crude oil stocks are below 5-year average

Source: Bloomberg Finance L.P., DBS Bank

US crude oil production continues to run on full steam YTD in 2018

Source: Bloomberg Finance L.P., DBS Bank

US rig count on a steady pullback again YTD in 2018

Land Offshore w-o-w chg

Source: Baker Hughes, DBS Bank

Valuation and Stock Picks

CNOOC 8,211 9,743 +19% HKD 16.00 HKD 16.50 +23%

Investment summary of top picks

EV/Sales Revenue P/E EV/EBITDA P/B ROE (%) Net D/E

Source: Bloomberg Finance L.P., DBS Bank

DBS Group Research . Equity 6 Sep 2018

BUY Leveraged to higher oil prices

ed-JS/ sa- CS /AH Page 9

CRITICAL FACTORS TO WATCH Realized oil price (US$/bbl)

exploration and production of crude oil and natural gas, 42.0

primarily within offshore China, with exclusive rights to engage

positive. We had previously stated that the market had over-

reserves. Indeed in 4Q17 CNOOC announced an increase in its

CNOOC’s share price, in our opinion.

Lower all-in cost drives ROE improvement. CNOOC’s sharpened 251

focus on tapping lower-cost resources and its first-in-class cost 167

hanging fruit’ resources have already been exploited. Together 0

expected to remain flattish, acquisitions of overseas assets 426

could be a key growth driver. We believe management should 319

valuations, low cost of production, and solid operational

Source: Bloomberg Finance L.P.

Op Profit Brent Op Profit Share Px

Source: Bloomberg Finance L.P.

should be able to rake in stronger operating cash flows of 0.30

Higher dividend payout with stronger operating cash flows. 70,000.0

correlation to CNOOC’s operating cash flow (OCF) per share, 20,000.0

with a c.90% correlation coefficient (whereas DPS correlation 10,000.0

FY18 will rise by a similar amount. ROE

offshore China. It has also increased its overseas output levels

1.3 +2sd: 1.3x

0.7 -2sd: 0.71x

Source: Company, DBS HK

Income Statement (RMB m)

Interim Income Statement (RMB m)

Revenue 66,832 79,658 92,362 94,028 105,649

Balance Sheet (RMB m)

Net Fixed Assets 454,141 432,465 395,868 404,185 400,031

ST Debt 33,585 19,678 13,892 23,892 23,892

Non-Cash Wkg. Capital 59,539 44,068 63,366 90,544 111,516