Haitong International has released a research report forecasting that PETROCHINA's (00857) net profit attributable to the parent company for 2026-2028 will be RMB 201.62 billion, RMB 186.99 billion, and RMB 200.11 billion, respectively. This corresponds to earnings per share of RMB 1.10, RMB 1.02, and RMB 1.09. Based on peer valuation levels and considering the company's position as a global oil and gas leader with low costs across the entire industrial chain and strong profit resilience, the firm has been assigned a 2026 price-to-earnings ratio of 11x. This results in a target price of HK$13.6, factoring in the HKD/RMB exchange rate. This marks the initiation of coverage with an "Outperform" rating. Haitong International's key viewpoints are as follows:

Upstream Exploration and Production: Geopolitical conflicts are driving oil prices higher, providing support for upstream profitability. The report anticipates an average Brent crude price of $85 per barrel in 2026, which will amplify the company's low-cost advantage. Referencing 2022 data, for every $10 per barrel increase in the average Brent crude price, PETROCHINA's upstream segment revenue increased by 8-10% year-on-year. If the 2026 average Brent price is $85 per barrel, a 25% increase from the assumed 2025 price of $68, the upstream oil and gas revenue growth rate is projected to reach 20%. As the company has consistently advanced its strategies of "increasing reserves and production" and "reducing costs and increasing efficiency," upstream unit extraction costs are relatively fixed. Consequently, the marginal increase from higher oil prices is expected to translate directly into net profit. This incremental contribution from rising oil prices could add RMB 45.5-52.0 billion to upstream net profit. Combined with production growth, the proportion of net profit attributable to the parent company from the upstream segment is expected to rise.

Strategic Transformation: Dual Drivers of High-End Chemicals and Scaling Up New Energy. Capital expenditure of RMB 279.4 billion in 2026 will further increase investment in new energy, positioning it to become a third growth curve. In the downstream sector, the company is accelerating its transition from a scale-focused model to an efficiency-focused one. Through the implementation of its "high-end chemical products" strategy, PETROCHINA is continuously optimizing its product mix, converting more crude oil components into high-value-added special new materials. Sales volumes of high-end products like polyethylene and polypropylene are also expected to grow in 2026. Revenue growth for the refining, chemical, and new materials business is projected to reach 15% in 2026. This growth stems not only from the capacity release of new material production lines but also from the cost-reduction and efficiency gains of integrated refining and chemical operations. The shift in the profit center's focus upwards will not only effectively hedge against risks from fluctuations in downstream fuel demand but also enhance the company's long-term profit resilience and valuation appeal in the capital markets.

Industry-Leading High Dividend Yield, Prominent Defensive Attributes. The company's dividend yield for 2025 is 6%, with total annual dividend payout exceeding RMB 86 billion and a payout ratio of 55%, a historical high over the past five years. This is significantly above the global average of 3%-4% for integrated oil majors. The 2026 payout ratio is expected to be maintained at 55%, corresponding to an estimated H-share dividend yield of 6.4% for 2026. Supported by stable dividend policies and ample cash flow, the stock offers rare value as a high-dividend defensive holding.

Risk warnings include substantial fluctuations in crude oil prices, weak downstream demand, and raw material price increases exceeding expectations.