Focus on recovery in demand for Sinopec

After the oil major's 24pc profit rise for first half, analysts look for positive factors such as asset injections and lift from stimulus measures

PUBLISHED : Monday, 26 August, 2013, 12:00am
UPDATED : Monday, 26 August, 2013, 5:09am

Sinopec Corp's earnings per share (EPS) rose 21 per cent to 25 fen in the first half, less than half what analysts have projected for the whole of this year.

The Chinese oil major's net profit rose 24.1 per cent to 29.42 billion yuan (HK$36.99 billion) in the first half, beating PetroChina's 5.6 per cent increase.

Sinopec's turnover grew 5 per cent to 1.42 trillion yuan in the first half.

"In the second half, we plan to sell 84.25 million tonnes of oil products in the domestic market," said the company, which is listed in Hong Kong, Shanghai, New York and London.

In the six months to June, Sinopec produced 9.2 billion cubic metres of natural gas, processed 115.4 million tonnes of crude oil and turned out 23.3 million tonnes of crude oil. The company sold 88 million tonnes of oil products in the first half.

"Sinopec has witnessed a slight improvement in oil product demand in July, although not significant. Sinopec does not expect any substantial demand recovery for petrochemicals this year in China. We expect the company's focus to be for assets where it can deploy its low-cost operating leverage with size likely to be US$1 billion to US$2 billion and deal returns accretive," a JP Morgan report said.

Standard Chartered this month cut its forecast for Sinopec's earnings per share by 8 per cent to 56 fen in anticipation of poor first-half results. But it raised its EPS forecast for next year by 7 per cent to 65 fen, factoring in the impact of the recent measures taken by Beijing to boost the economy.

The feedback from economists, researchers, chemical traders and market surveyors has been more positive recently than in April, according to a Standard Chartered report. "They now expect a mild stimulus led by infrastructure construction and support for exports to have effect in the second half. We expect the positive demand impact to follow through into the first half of 2014."

Since June, the central government has been announcing plans to accelerate construction of infrastructure projects such as subways, roads and natural gas pipelines, the bank said.

Celestial Securities said: "The company could benefit from rising natural gas demand in China. Along with hopes over possible asset injections from the … parent, we remain cautiously optimistic over its outlook."

The country's chemical demand bottomed out last month, according to the China Petroleum and Chemical Industry Federation.

In the first half, international oil prices hit an early high and then eased, said Sinopec. During this period, mainland demand for oil products and chemical products continued to grow, but prices of chemical products dropped due to an increase in imports, the company said.

On August 13, production began in Sinopec's ethylene plant in Wuhan, the capital of Hubei province, with a target of 800,000 tonnes a year.

The firm plans to issue an interim dividend of nine fen per share.