PetroChina Flags $1.5 Billion Writedown While Profit Doubles 

(Bloomberg) -- PetroChina Co. warned of a $1.5 billion writedown from the disposal of some assets as it estimated full-year net income more than doubled last year. Shares fell.

China’s biggest oil and gas producer lost as much as 2.3 percent in Hong Kong Tuesday. Huatai Financial Holdings (Hong Kong) Ltd. cut its rating on the stock to hold and slashed its price target by 40 percent, cautioning that PetroChina faced a weak fourth quarter due to write-offs and large inventory losses.

The company said in a filing Monday that net income could have jumped as much as 132 percent in 2018, citing Chinese accounting standards. That would take it to 52.8 billion yuan ($7.8 billion) for the year, according to Bloomberg calculations, compared with a 61 billion yuan average of 13 estimates that are based on international standards before the announcment.

That’s in spite of a non-recurring loss of as much as 10 billion yuan, on which the company didn’t elaborate beyond saying it disposed of certain oil and gas, as well as fixed, assets that met the conditions to be scrapped under accounting standards. If it weren’t for the writedowns, earnings could have risen as much as 149 percent, PetroChina said.

  PetroChina Flags $1.5 Billion Writedown While Profit Doubles 

In addition to a weak fourth quarter due to lower oil prices, Huatai sees PetroChina getting a smaller-than-expected stake in the upcoming national pipeline company and its free cash flow under pressure from an exploration focus on high-cost fields in Xinjiang.

Gains Eroded

Citigroup Inc. said lower oil prices in the final three months of 2018 have fully offset PetroChina’s benefits from natural gas winter price hikes. As gas prices start to decline from March and crude trades at about $60 a barrel, the bank sees limited catalysts to re-rate the stock, maintaining a neutral rating and a target of HK$5.

PetroChina fell 2.1 percent to HK$5.02 at 11:04 a.m. local time. That compares with a 0.8 percent drop in the city’s benchmark Hang Seng Index. State-owned peer Cnooc Ltd. slid 2.1 percent.

The higher annual profit by PetroChina was broadly anticipated after it reported in August that third-quarter earnings surged more than fourfold. The majority of its income comes from exploration and production, so it benefited from global benchmark Brent crude averaging 31 percent higher in 2018 than the previous year, at almost $72 a barrel.

“Despite the significant drop in oil prices in the fourth quarter, the international average crude oil price of 2018 experienced a relatively significant rise,” the company said. It also cited increasing demand for natural gas, as well as production optimization, broadening income sources and cost-cutting as reasons for the profit increase.

PetroChina shares sank to a three-year low earlier this month amid broader fears over an economic slowdown and concerns that trading troubles similar to losses at peer Sinopec, officially known as China Petroleum & Chemical Corp., could be unearthed.

©2019 Bloomberg L.P.