Friday, March 30, 2012

PetroChina (PTR), Sinopec (600688-SH) Chinese Energy Companies Stand Out; RIM Maintaining Shareholder Value; Canada Records Budget Surplus In January

For the month of January 2012 Canada recorded a monthly surplus ($1.7 billion), the first since February 2009. Canada's fiscal year ends in March; Thus far (March 2011 to January 2012) the federal deficit is $16 billion down from $27.7 billion in the previous period. Canada's annual deficits aren't expected to end until 2015 at the earliest (when it may be +$3.4 billion). For the 2010 ten month period ending Jan 2012, the reduction in deficit is attributable to higher revenues ($189b --> $197b) being met with lower program spending (-1.7%; $194.1b --> $190.8b). Canada's public debt spending is up +$300 million.

China sets sights on Mongolia

China already does a lot of business in Mongolia with state-owned Batou Steel Rre-Earth operating Inner Mongolia's large Bayan Obo mine. Now, coal company Shenhua Energy (China's biggest coal producer) is aiming to secure a 40% interest in the world's largest deposit of steelmaking coking coal, Tavan Tolgoi (home to six billion tonnes of coal), by mid 2012 just after Mongolia's next general election. Mongolia hasn't been an easy place for companies to do business; Last July, Mongolia promised Shenhua 40% of the project but that deal was revoked after other countries deemed the process unfair. Other bidders come from the US (Peabody Energy) and Russia (Russian Railways). The other major coal deposit in the south Gobi region Ovuut Tolgoi, was recently invested in by Chinese coal company Chalco (subsidiary of Chinalco); Chalco boughtout Ivanhoe Mine's 57% stake for $889 million. The largest resource in the South Gobi region is copper mine Oyu Tolgoi. At its peak Oyu Tolgoi will be the source of one third of Mongolia's gross domestic product. China is the world's leading consumer of coal.

China's largest oil company by production, Petro China (86% state-owned) produced more oil in 2011 than ExxonMobil after Exxon posted a reduction in total volumes. Exxon production -5% to 2.3M bpd while Petro China production +3.3% to 2.4M bpd. Petro China is a growing company that's for sure, but does that make it a great investment stock? I'm not so sure about that. Petro China was created with one objective: To feed China's increasing energy appetite. China's demand for petroleum products will grow by 100% over the next 25 years. The company is probably not overly concerned with shareholder value but who can blame them? China needs to secure oil in order to support the 8 and 9% gdp growth rates and state-owned enterprises like PetroChina and Sinopec are getting the job done.

Sinopec petro output was up +1.6% to 407.9M boe in 2011 (1.1M bpd) HOWEVER the increase came only from natural gas (73.6M boe --> 89.2M boe), crude oil production was down -1.9% to 321.7M boe). The higher output didn't add to profits; Fourth quarter earnings at Sinopec were down -23% attributed to a number of factors including higher tariffs in China (+7.1%) and the lower price of natural gas. In the first quarter of 2010 PetroChina bought a 9% interest in Canadian oil company Syncrude. In January 2012 a major Athabasca oil sands project came under complete control of PetroChina after the company paid $673 million for the 40% of shares that it didn't already own.
Warren Buffet was a PetroChina shareholder until September 2007. A lot of PetroChina's oil comes from Daquing and Changquing.

Sinopec, China's number two oil and gas company is China's largest oil refiner providing the country with 80% of its fuel. Due to increasing profits, in 2010 the company made Fortune 500 top ten list which is a feat considering the prices it receives for its produces is less than it would have in the free market due to governmental restrictions on pricing.

Research In Motion

The device marker is currently undergoing changes as evidenced by the resignation of key board members and an explicit desire to refocus business away from the consumer market. I'd interpret the company's recent statements this way: In countries such as the United States and South Korea where BlackBerry overall market share is low, the company will not have app using-typical users as the primary target for marketing however, in other countries such as the Canada, Argentina, South Africa and Indonesia (and maybe even the UK) RIM's existing consumer market will continue to be supported in a positive way (this is assumed given that the company stated it will cede only selected markets) - This is a wise decision for Research In Motion considering asset writedowns associated with the company's market value, reduced net income by more than $300 million in the latest quarter (ended March 2012).

I'm not really disappointed by RIM's latest results. PlayBook sales are up to 500,000 units from 200,000 units in the previous quarter. In the same quarter, adjusted net income was just over $400 million which is comparable to the previous quarter when revenue was significantly higher. PlayBook now holds 15% of the Canadian tablet market, up from 5% in late 2011. RIMM's stock was up +7.06% the day following the news (Friday March 30, 2012). Also note that 90% of Fortune 500 companies use the BlackBerry phone.

1 comment:

  1. In the current year to date most energy funds including a pure play like China Energy ETF, have

    appreciated less than 3%, considering that this is one fourth of last year’s growth clearly suggests that there is a lot to be gained even on a 6 – 9 months outlook.