Analyst Note| Chokwai Lee, CFA |
China Petroleum & Chemical Corp’s, or Sinopec’s, first-quarter 2021 net profit of CNY 18.5 billion was a significant improvement from a net loss of CNY 19.2 billion, a year ago. This is slightly better than the earnings guidance of between CNY 16 billion and CNY 18 billion, mainly attributable to strong demand for its products given recovering domestic economic activities, as well as better cost management. We raise our fair value estimate to HKD 5.90 per H-share (USD 75 per ADR, CNY 4.92 per A-share) from HKD 5.60 (USD 72, CNY 4.70) after taking into account the stronger results. We think Sinopec’s current share price is attractive on the back of firm oil prices and recovering downstream earnings. Management intends to keep dividend policy stable, and we believe our 70% payout ratio estimate is achievable, translating to a yield of about 10% for the H-shares in 2021.