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China Petroleum & Chemical Corp ADR SNP

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Sinopec’s Q3 Results See Normalized Downstream Earnings; Shares Remain Undervalued

Chokwai Lee, CFA Senior Equity Analyst

Analyst Note

| Chokwai Lee, CFA |

Sinopec’s third-quarter 2021 net profit of CNY 20.8 billion was 2.8% lower sequentially. Overall, lower-than-expected upstream earnings were offset by robust performance of the downstream segments. We keep our fair value estimate at HKD 5.90 per H-share (USD 75.00 per ADR, CNY 4.92 per A-share), after taking into account the stronger Chinese yuan and our latest oil price assumptions. We think Sinopec is currently undervalued, but we favor CNOOC over Sinopec given our expectation of a firm oil price environment in the near term, where CNOOC should benefit most given its cost efficiency and robust production growth. That said, we think Sinopec’s 2022 dividend yield of more than 10% for the H-shares is attractive, and this is supported by the firm’s strong operating cash flow.

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Company Profile

Business Description

China Petroleum & Chemical, or Sinopec, is one of China's national oil companies and one of Asian's largest integrated oil companies in terms of revenue. Its income is derived primarily from refining and marketing of oil products and petrochemical production. Sinopec has China's largest petrol station network with over 30,000 stations and enjoys significant market share in petrochemicals. Established in 2000 by China Petrochemical Corporation, a state-owned enterprise and majority shareholder, the company also owns oil and gas assets in Shandong and Sichuan provinces. It has a smaller global upstream presence than peers PetroChina and CNOOC.

No. 22 Chaoyangmen North Street, Chaoyang District
Beijing, 100728, China, People's Republic of
T +86 1059960028
Sector Energy
Industry Oil & Gas Integrated
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type
Employees 384,065