The Zhitong Finance App learned that Guotai Junan released a research report saying that market value management or inclusion in the assessment mechanism stabilizes market expectations and promotes continuous improvement in the operating efficiency of central enterprises, and that petrochemical central enterprises are expected to usher in a revaluation. In the medium to long term, upstream Capex investment in oil and gas is insufficient, oil prices have been rising for a long time in the context of energy transformation, and high-quality domestic economic development continues to drive improvements in the performance of petrochemical central enterprises. Currently, there is plenty of room for revaluing the value of “three barrels of oil” against overseas energy companies. The state-owned enterprise reform background, combined with the “one profit, five rate” and “market value management” assessment goals, drives continuous improvement in the ROE of petrochemical central enterprises. Operating efficiency continues to improve, and the valuation of petrochemical central enterprises may be further improved.

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Incident: On January 24, 2024, at a press conference held by the Information Office of the State Council, Xie Xiaobing, head of the State Council's State-owned Assets Administration Bureau, explained that the State Council's State-owned Assets Administration Commission will further study the inclusion of market value management in the performance assessment of central enterprise heads. Xie Xiaobing said that on the basis of encouraging central enterprises to include factors related to the price achievement of listed companies in the early stages, the State Council's State-owned Assets Administration Commission will include market value management results in the assessment of central enterprise leaders, guide central enterprise leaders to pay more attention to and pay more attention to the market performance of the listed companies they control, and promptly use market-based methods such as increasing confidence, stabilizing expectations, and increasing cash dividends to better return investors.

Guotai Junan's views are as follows:

Market value management may be included in the assessment, and the valuation of petrochemical central enterprises may be further improved:

Since 2019, the reform of state-owned state-owned enterprises has been deepened, and improving the competitiveness of state-owned enterprises has become one of the key tasks of the state-owned assets system. The State Council's State-owned Assets Administration Commission continues to incorporate relevant evaluation indicators into the performance evaluation system of listed central enterprises. By 2023, it has formed six indicators to optimize the central enterprise management assessment index system — one profit and five rates — and proposed the overall goal of one increase, one steady four improvements. On this basis, the State Council's State-owned Assets Administration Commission will further study the inclusion of market value management in the performance assessment of central enterprise heads, or as a new element, clarify the State-owned Assets Administration Commission's assessment mechanism for listed central enterprises and stabilize long-term expectations for the development of central enterprises. Central enterprises are the cornerstone of high-quality domestic assets, and the mechanism is expected to further improve the operating efficiency and valuation of petrochemical central enterprises.

Since 2019, the operating performance of petrochemical central enterprises has been stable and improving:

Since the relevant indicators were included in the assessment of listed central enterprises in 2019, the performance of petrochemical central enterprises has been steady and improving. In 2019-2022, CNPC/CNOOC (CNOOC) /Sinopec/Kunlun Energy net profit CAGR was 48.72%/23.74%/13.58%/6.35%, respectively. CNOOC Engineering/CNOOC Services, etc. continued to recover with the central rise in oil prices. Furthermore, central petrochemical companies such as Sinopec and CNOOC have stabilized investor expectations and capital market confidence through repurchases by controlling shareholders, promising to increase dividend ratios, etc.

Oil prices are rising at the center, and profit expectations of central enterprises have improved:

In the medium to long term, upstream Capex investment in oil and gas is insufficient, oil prices have been rising for a long time in the context of energy transformation, and high-quality domestic economic development continues to drive improvements in the performance of petrochemical central enterprises. Currently, there is plenty of room for revaluing the value of “three barrels of oil” against overseas energy companies. The state-owned enterprise reform background, combined with the “one profit, five rate” and “market value management” assessment goals, drives continuous improvement in the ROE of petrochemical central enterprises. Operating efficiency continues to improve, and the valuation of petrochemical central enterprises may be further improved. We recommend CNPC, CNOOC, CNOOC, CNOOC, Kunlun Energy, CNOOC, and Sinopec's refining and chemical projects.

Risk warning: Macro pressure causes downstream demand to weaken, and overseas recession causes oil prices to fall.