2023-05-03 11:30:15 和讯  中银国际Lawrence LAU/Rainey
  The net profit of Sinopec dropped 12% YoY to RMB20.7bn in 1Q23 under IFRS, 83% above our forecast. E&P, refining and chemicals segments all significantly beat our expectations. Looking ahead, we expect higher oil price in 2H23, which should bode well for the company, especially for E&P segment. We increase our 2023-25 earnings forecasts by 12-27% mainly on higher estimated profits for E&P and refining segments. We reiterate our BUY call on its H shares with target price increased to HK$5.87.
  Key Factors for Rating
  While its realised oil price dropped 16% YoY, the operating profit of its E&P segment still grew 23% YoY to RMB12.8bn in 1Q23 under IFRS. The combined impact of the 7% YoY gain in realised gas price, 14% YoY fall in lifting cost and reduced loss on imported LNG more than offset the impact of lower oil price.
  While the operating profit of its refining segment fell 54% YoY to RMB10.4bn in 1Q23, it was still 53% above our forecast. By optimising crude oil procurement and lowering cost, the company’s refining margin only fell 34% YoY to US$8.7/bbl YoY in 1Q23, US$1.8/bbl higher than our forecast.  
  We expect oil price to be stronger in 2H23 as we see supply shortfall in the global oil market after the recent output cut by OPEC+. The rise in oil price is positive to the company as it will result in higher earnings for the E&P segment and short-term expansion in refining margin. These benefits will be partly offset by lower earnings for the chemicals segment if competition remains keen.
  We increase our 2023-25 earnings forecasts by 12-27%, mainly on higher earnings for the refining and E&P segments. We increase our 2023 refining profit by 45% on US$0.8/bbl increase in refining margin and assume steady growth for next two years. For E&P segment, we increase our 2023-25E segmental profits by 4%-7% on higher gas price, lower lifting costs and smaller losses on imported gas. The company’s H shares still look attractive at 7.1x 2023E P/E and 9.2% 2023E dividend yield.
  Key Risks for Rating
  Sharp fall in oil price.
  Lower-than-expected margin at its downstream operations.
  We increase our target price for its H shares from HK$5.01 to HK$5.87. We raise our target valuation from 0.65x 2023E P/E to 0.76x as the estimated average 2023-25E ROE rises from 7.2% to 8.5% following the increases in our earnings forecasts. This is equal to 8.1x 2023E P/E.
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