Overnight the crude oil price settled below $40, meaning the price has pulled back 20% from $50 to below $40 within two months. China’s largest offshore Oil and Gas producer CNOOC (883 HK) issued a profit warning six days ago, citing that it is likely to make a greater than expected first-half loss of $1.2bn. Behind the headlines however, there are concealed opportunities highlighted by OTAS this morning, where a few positive signals have flagged with the stock down 10% from the recent high.
The implied volatility of CNOOC relative to the industry has decreased to 0.90 from 0.93 last month, and remains below the industry average. Month-on-month implied volatility is down 7%. In general, declining implied volatility means greater certainty and may lead to a firmer share price.
While the share price has dropped 3.7% in the past month, EPS momentum has increased by 9.25% despite the recent profit warning. In fact, CNOOC’s EPS momentum has picked up from a negative three months ago into a positive in the last two months.
EPS Momentum Chart (past 1 year)
EPS Momentum Chart (past 6 months)
The 12 months forward dividend of 3.38% remains relatively high within the sector. Peers such as Petrochina ‘H’ and China Oilfield Services ‘H’ yield only 1.92% and 0.84% respectively on a 12 months’ forward basis. CNOOC’s dividend payout is far greater than that of Petrochina and it is a signal that management is relaxed about a period of temporary earnings weakness, which in any case appears to be over.