Sinopec’s 1H 2022 Beats Expectation; Attractive Dividend, Share Buyback To Support Share Price

Sinopec’s first-half 2022 net profit of CNY 44.5 billion, up 10.5% year on year, slightly beat our expectations due to strong upstream earnings that helped to offset weaker downstream performance. We raise Sinopec’s fair value estimate to HKD 5.50 per H-share (CNY 4.76 per A-share) from HKD 5.40 (CNY 4.40), after updating our energy price and foreign exchange assumptions. We reduce our Morningstar Uncertainty Rating to High from Very High as we see energy prices staying at levels that support Sinopec’s earnings. We think Sinopec is currently undervalued, but the weaker downstream earnings could continue to weigh on its share price performance in the near term. Our preferred pick for the sector is CNOOC, given its upstream focus and cost efficiency.