Sinopec Earnings: Robust Upstream Partly Offsets Weaker Downstream, H-Shares Undervalued

Sinopec’s first-quarter net profit of CNY 18.7 billion, down 10% year on year, was slightly better than we expected, on the back of firm upstream earnings, which partly mitigate the weaker performance from the refining and chemicals segments. After updating our latest energy price assumptions, we lift our 2024-26 earnings forecasts by 1%-4%. Consequently, we raise our fair value estimate to HKD 5.90 per H-share (CNY 5.40 per A-share) from HKD 5.60 (CNY 5.10). We think Sinopec’s H-shares are undervalued, underpinned by the attractive 2024 dividend yield of around 8% and ongoing share buyback plan. We believe Sinopec will continue to focus on shareholder return but we expect upside to the dividend payout ratio to be limited, as our forecast of 70% for 2024 is already higher than peers’ 45%-50%.