PetroChina

Stock code: 0857.HK

Last close: HK$8.60

By Anna Yu

We have revised up our earnings estimates for the integrated oil company by 2 percent for FY08 to 138 billion yuan with earnings per share (EPS) of 0.76 yuan and by 21 percent for FY09 to 188 billion yuan with EPS of 1.03 yuan, after reviewing its results during the first quarter of 2008 and assuming a crude oil price of $115 per barrel for the next two years.

Based on a forward FY09 price-to-earnings (PE) ratio of 11 times, we have updated our target price to HK$12.67.

Backed by a solid 3.5 percent increase in crude oil production and 62 percent surge in the average realized crude oil price to $93.45 per barrel, the exploration and production division's operating profits increased by 35 percent to 130.2 billion yuan in the first half. Operating profits in the chemical and marketing segment and natural gas and pipeline division increase by 24 percent and 37 percent to 6.7 billion yuan and 8.4 billion yuan during the first half, respectively, with the operating margin up a slight 0.3 percent and 0.8 percent to 11.1 percent and 27.2 percent.

By the way, the company announced that it would acquire a 51.9 percent interest in CNPC (Hong Kong) (0135.HK) from its parent CNPC for a total consideration of HK$7.59 billion based on the Aug 26 closing price of HK$3.02. After the acquisition, CNPC (Hong Kong) will explore new opportunities in city gas, vehicle fuel gas and other natural gas business in end-user markets while maintaining its upstream operation. In the first half, CNPC (Hong Kong) reported a profit of HK$1.28 billion, or 2 percent of PetroChina's for the same period, while its crude oil reserves accounted for 1.4 percent.

An affiliated company(ies) of Taifook Research Limited make(s) a market in the securities herein covered and/or any warrants or options on these securities herein covered.

The author is an analyst with Taifook Securities.

Bank of China

Stock code: 3988.HK

Last close: HK$3.39

Target: HK$3.67

Support: HK$3.17

By Lai Wai-shing

Bank of China's earnings attributable to shareholders during the first half reached 42.2 billion yuan, up 42.8 percent year-on-year and worse than its rivals.

During the same period last year, the lender saw a 52 percent growth.

By the end of this June, the book value of the bank's subprime-related bond was $3.64 billion, representing 1.5 percent of its securities investment.

The debt provision was $1.9 billion; while during the same period last year, the figure was 1.1 billion yuan.

The lender held the US Alt-A bond worth $1.83 billion, accounting for 0.75 percent of its securities investment. The provision was $522 million.

The net interest income was 81.5 billion yuan, up 14.78 percent year-on-year.

Its non-interest income reached 37.3 billion yuan, up 99.06 percent year-on-year.

The author is a senior independent commentator.

China South Locomotive

Stock code: 1766.HK

Stop loss: HK$2.50

Last close: HK$2.85

Entry: HK$2.70

By Castor Pang

China South Locomotive's business largely revolves around the production of electric trains on the mainland. With the central government set to rapidly boost its investment in electric rail network projects, it is expected that China South Locomotive will see significant benefits.

Although the market continues to spiral downwards, capital has continued to flow into infrastructure stocks.

At this stage, it remains unclear as to how the company will keep a handle on its costs, particularly given the fact that steel and electronic component prices have not dropped. This factor will become a greater concern for the company in terms of maintaining and growing its profits.

As the stock has been listed for just a few months, there is still a good chance of a rebound. Investors are advised to enter at HK$2.70, a level close to its offer price, and hold for a long-term investment target of HK$3.20.

Investors should sell the stock once it falls past HK$2.50.

The author is a strategist with Sun Hung Kai Financial Group.

(HK Edition 09/12/2008 page3)