CNOOC Raises 2023 Output Guidance; H-Shares Remain Undervalued

We keep CNOOC’s fair value estimate at HKD 17.50 per H-share (CNY 15.30 per A-share). We think CNOOC’s H-shares are currently undervalued, and the firm remains our top pick in the sector given its cost efficiency and robust production growth. We note oil producers may not be in favor with the market given relative outperformance over the past two years and with the prospect of falling oil prices to slow the earnings outlook. However, our fair value estimate factors in a long-term Brent crude price of USD 60 per barrel which we believe reflects market equilibrium demand-supply for oil. In addition, CNOOC’s dividend yield remains attractive given that annual absolute dividend will be at least HKD 0.70 per share for 2023-24, implying annual yield of at least 6.9% based on closing price as of Jan. 11.