No end in sight for biggest stock slump in history

Employees at a PetroChina refinery in Lanzhou, Gansu province, China. Ten years after PetroChina peaked on its first day of trading in Shanghai, the state-owned energy producer has lost about US$800 billion (S$1.09 trillion) of market value.
Employees at a PetroChina refinery in Lanzhou, Gansu province, China. Ten years after PetroChina peaked on its first day of trading in Shanghai, the state-owned energy producer has lost about US$800 billion (S$1.09 trillion) of market value.PHOTO: REUTERS

HONG KONG • It is going to take more than the biggest stock collapse in world history to convince analysts PetroChina has finally hit bottom. Ten years after PetroChina peaked on its first day of trading in Shanghai, the state-owned energy producer has lost about US$800 billion (S$1.09 trillion) of market value - a sum large enough to buy every listed firm in Italy, or circle the Earth 31 times with US$100 bills.

In current dollar terms, it's the world's biggest-ever wipeout of shareholder wealth. And it may only get worse. If the average analyst estimate compiled by Bloomberg proves right, PetroChina's Shanghai shares will sink 16 per cent to an all-time low in the next 12 months.

The stock has been pummelled by China's economic policy shifts in the past decade, including the government's move away from a commodity-intensive development model and bids to clamp down on speculative manias of the sort that turned PetroChina into the world's first trillion-dollar company in 2007.

Throw in oil's 44 per cent drop over the last 10 years and Chinese President Xi Jinping's plans to promote electric vehicles, and it is easy to see why analysts are still bearish. It doesn't help that PetroChina shares trade at 36 times estimated 12-month earnings, a 53 per cent premium versus global peers.

"It's going to be tough times ahead for PetroChina," said Mr Toshihiko Takamoto, a Singapore-based money manager at Asset Management One, which oversees about US$800 million in Asia. "Why would anyone want to buy the stock when it's trading for more than 30 times earnings?"

Of course, many of the factors behind PetroChina's slump have been outside the company's control. When it listed in Shanghai in 2007, bubbles in both oil and the Chinese equity market were primed to burst, while the global financial crisis was around the corner. Measured against the 73 per cent drop in China's CSI 300 Energy Index over the past decade, its 82 per cent retreat does not look quite so bad.

As Citigroup analyst Nelson Wang points out, most of PetroChina's shares are owned by the Chinese government, so the hit to minority investors has not been as big as the loss in total market value might suggest.

On Hong Kong's exchange, where PetroChina first listed in April 2000, stockholders have enjoyed strong long-term gains. The company's so-called H shares have returned about 735 per cent since their debut, outpacing the city's benchmark Hang Seng Index by more than 500 percentage points.

The H shares, which account for less than 12 per cent of PetroChina's total shares outstanding and trade at a discount to their Shanghai counterparts, may rise 31 per cent over the next year, according to the latest price target from Hong Kong-based analyst Laban Yu at Jefferies Group. PetroChina could return a "huge" amount of cash to shareholders if it decides to start spinning off pipeline assets, he said in an interview last week.

A spokesman for Beijing-based PetroChina declined to comment.

When it comes to PetroChina's Shanghai-traded shares, analysts are unusually pessimistic. The energy producer is one of just a handful of large-cap Chinese companies with more sell ratings than buys.

Valuation is one reason for the bearish outlook. Even after its slump, PetroChina's forward price-to-earnings ratio in Shanghai is 80 per cent higher than its historical average. And while the shares were more richly valued in 2007, it seems improbable that China's government would allow such heady market conditions to return any time soon.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on October 31, 2017, with the headline 'No end in sight for biggest stock slump in history'. Print Edition | Subscribe