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.