Macro Tsimmis

intelligently hedged investment

SELL PetroChina (PTR)

Posted by intelledgement on Mon, 05 Nov 07

LOL when we bought PetroChina, we stated:

“Plus there are some valuation issues. China is a great market and 11B BBLS of reserves ain’t hay…but Exxon’s (XOM) annual profit is bigger than PTR’s revenues…so it is a little unsettling to see PTR with a market cap of better than half the size of XOM when their revenues are more like a third of Exxon’s and their profits are about a quarter of Exxon’s.”

PetroChina floated a four-billion share IPO on the Shanghai exchange earlier today and as an indication of the pent-up demand for investment vehicles on the mainland, the offering was oversubscribed and by the end of the day, the stock had been bid up to US$5.90. Valuing the 85% of the stock still held by parent company CNPC at that price, and then adding in the valuation of the shares traded on the Hong Kong and New York exchanges and PTR is now a US$1 trillion company, the first on the planet. This pegs their valuation more than double Exxon’s US$488B, not to mention higher than the total value of several exchanges, countries, planets, and solar systems. To give you an idea of how overheated things are in Shanghai, less than a year ago, the marketcap of all the stocks on the exchange was US$1.1 trillion.

Of course, Shanghai is an anomaly,  a closed system: foreigners cannot buy or sell there, and Chinese mainland investors cannot buy or sell in Hong Kong…where the same share of PTR closed today at US$2.31. If we use the Hong Kong valuation to derive a marketcap for PTR, it comes out to a more modest $700B or so.

But that is still too rich for our blood, given that PTR is constrained from raising domestic prices and is being hurt by the rising price of international oil, is pressed to maintain production levels from aging domestic wells, and they recently announced 1H07 profits of a mere US$10.8B—up 1.4% from 2006—which is what Exxon (XOM) makes every 24 days or so. PTR may well be bid up from here, but if so, it is pure crowd psychosis and we are going to take our 75% or so profits here and find a more sane environment for the money.


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