Monday, November 5, 2007

Petrochina the 1 Trillion Dollar Company? Is *this* the top?

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Well in the weekly attempt to call the top in the Chinese market, I wonder if the Chinese valuing Petrochina at double Exxon as the world's first 1 trillion dollar company *is* a near term top? ;)
  • PetroChina became the world's first company worth more than $1 trillion on Monday, surging past Exxon Mobil as the Chinese oil producer's shares nearly tripled in their first day of trading in China.
  • Its Shanghai initial public offering of 4 billion shares raised 66.8 billion yuan, or $8.94 billion - a record for a mainland exchange.
  • Adding the value of PetroChina shares traded in Shanghai, Hong Kong and New York - and those still owned by the government - the company's total market capitalization ballooned to just over $1 trillion, compared to Exxon Mobil's (XOM) $488 billion.
  • However, more than 85 percent the shares outstanding - 157.9 billion shares - are held by PetroChina's parent company CNPC and are unlikely to trade in the market any time soon.
  • Like other yuan-denominated "A shares" traded in China, the PetroChina shares issued in Shanghai are meant for domestic investors and are not generally available to foreign buyers. They account for 2.18 percent of the company's enlarged share capital of 183.02 billion shares.
  • As of Friday, PetroChina's market value was $456.6 billion. That was based on the company's share price in Hong Kong, where it has listed 21.09 billion shares, or about 11.5 percent of total stock. Those shares closed Monday at $2.31.
  • PetroChina's shares closed Monday in Shanghai at a much higher $5.90, lifting the value of company's remaining 162 billion shares - mostly held by CNPC - to $955 billion. Adding the value of PetroChina's Hong Kong shares, worth about $49 billion, the company's total market capitalization rose to more than $1 trillion.
  • PetroChina's status as the world's most highly valued company by market capitalization thus does not necessarily reflect stronger profitability or productivity than its rivals. The company has seen revenue soar amid surging oil prices but has struggled to boost production from its aging domestic oil fields. In refining, it has struggled with a widening gap between soaring world crude oil prices and state-controlled prices for oil products in the domestic market. PetroChina reported that its first-half net profit rose 1.4 percent from a year earlier on modest output growth to $10.8 billion.
To me this valuation is hard to call "real", since the stock took a bath in liquid Hong Kong, but its now reached comical proportions to see the valuation differences in Shanghai and the rest of the world (esp. Hong Kong) on issues that trade in both markets. I posted a few weeks ago about the comical moves in Chinese small cap companies - even companies with no growth were getting pushed up 400% in a week. Well here we have a case (and yes I know the "long long long" term case), which grew profits 1.4% year over year but the powers that be have increased its valuation by nearly 100% in 3 months. Nice.

That said all these recent IPOs in Shanghai might slowly (very slowly) sapping up the insatiable demand for stock. But with the huge savings rate and deep government coffers the supply/demand balance could be there for a very long time.

Other big cap chinese companies also getting whacked, the same old same old, China Life (LFC), China Movile (CHL), Aluminum Corp of China (ACH) - as for these stocks, they have almost all doubled in 3 months. To continue to double PTR and CHL would be worth more than any other companies on the face of the Earth; so I would not be surprised to see some reality. Bespoke showed as a few weeks ago that 7 of the top 25 companies in the world by valuation are now Chinese; much like US tech stocks dominated the list in late 90s, much like Japanese stocks dominated the list in the late 80s. Those that do not learn from history....

As I have said continuously - everyone tells you they are 'safe' to own until Olympics next summer. That tells me either they will correct before then or well after the Olympics. My bet is on the former not the latter, but it is not going to work out so perfectly that these stocks will rally straight into the opening ceremony. When everyone expects something to happen, it does not. Not on Wall Street. Maybe in Shanghai, but they have their own set of rules.

Long Aluminum Corp of China in fund; no personal positions


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