M UpdateChina Energy | Asia Pacific4Q Preview: Watching DPS and FCFMarket concerns over the retrospective new resource tax are overdone, in our view. We expect PetroChina's 2023 net profit to grow 7% YoY, with the best FCF generation among the big three; the other two are likely to see declining earnings and stretched FCF. To play yield, we would pick PetroChina. Morgan Stanley Asia Limited+Jack LuEquity Analyst Jack.Lu@morganstanley.com +852 2848-5044 Kaylee XuEquity Analyst Kaylee.Xu@morganstanley.com +852 2239-1506 Morgan Stanley appreciates your support in the 2024 Institutional Investor All-Asia Research Team Survey. Request your ballot here. China Energy & ChemicalsAsia PacificIndustry ViewIn-Line What’s Changed PetroChina (0857.HK)FromToEPS2023/24/25e -5%/-4%/-8%CNOOC (0883.HK)FromToEPS2023/24/25e -1%/-4%/-6%China Petroleum & Chemical Corp. (0386.HK)FromToEPS2023/24/25e -16%/-10%/-10%Exhibit 1:Yield comparison: PetroChina has the highest FCF yield, with significant upside for payoutSource: Company data, Morgan Stanley Research estimatesExhibit 2:4Q23 and 2023 earnings previewRmb bn1Q232Q233Q234Q23E20222023E2023EYoY %Brent (US$/bbl)82 78 86 83 99 82 including one-off lossPetroChinaNet profit44 42 46 49149 180 160 7%Total EBIT62 58 66 69217 255 227 -E&P41 45 47 44 166 176 148 -Refining 9 9 9 9 41 37 37 -Chemical(0.9) 0.8 0.3 0.1 (1) 0.2 0.2 -Marketing8 3 6 5 14 22 22 -Gas10 4 5 1413 33 33 -Others(5) (3) (3) (3) (17) (14) (14) SinopecNet profit21 15 18 1766 71 65 -2%Total EBIT31 23 26 2476 103 96 -E&P13 13 14 14 54 53 46 -Refining 10 1 8 4 12 23 23 -Chemical(1.8) (1.6) 0.6 0.2 (14) (3) (3) -Marketing8 9 7 6 25 30 30 -Others2 2 (4) - (1) (0) (0) CNOOCNet profit32 32 34 32 142 130 130 -8%Total EBIT42 43 45 43 194 173 173 Segment EBITSegment EBITSource: Company data, Morgan Stanley Research estimatesMorgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.+= Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be associated persons of the member and may not be subject to FINRA restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Key TakeawaysWe note one-off losses related to the new domestic resource tax (0.8%/0.6% of onshore/offshore oil & gas revenue) between 2H17 and 2022 in 2023 P&L.The retrospective tax impact (2H17-2022) on market value is limited as it's a one-off item. The new tax has been factored in our mo...
