37 investors express interest in Sinopec petrol stations

PUBLISHED : Tuesday, 26 August, 2014, 9:55am
UPDATED : Tuesday, 26 August, 2014, 9:55am

Shares of China Petroleum & Chemical (Sinopec) fell 0.37 per cent in early trade on Tuesday, after chairman Fu Chengyu said on Monday the nation’s second largest oil and gas producer has received 37 non-binding expressions of interest from would-be investors in its open tender for up to 30 per cent of its fuel distribution operation.

The potential investors have until the end of the month to enter binding bids on the sale that will be completed by the end of next month, he said, adding mainland firms and those that can help Sinopec lift non-fuel sales at its fuel stations will have priority to invest.

“The bidding process is a bit like an initial public offering, those offering the highest price and offer the best value creation proposal would be more likely to be selected,” he told reporters on Monday.

Sinopec in recent weeks has entered into non-binding preliminary agreements with “online supermarket” shopping platform operator 1haodian, and Taiwanese retailing major Ruentex Group, for potential joint merchandise procurement to lower costs.

Analysts believe Sinopec is eyeing the possibility to let the online retailers use the over 20,000 convenience stores run by its over 30,000 fuel stations as goods pick-up points and sales service centres.

Sinopec in May has also signed a framework cooperation agreement in May with China Taiping Insurance to sell car and life insurance at its petrol stations.

Sinopec shares Monday surged 4.3 per cent after it posted on Sunday a 7.5 per cent year-on-year net profit rise to 32.54 billion yuan, 2.3 per cent ahead of analysts’ estimate.

The profit growth was mainly due to a sharp jump in first-half operating profit at its refining operation to 9.76 billion yuan, from 213 million yuan in last year’s first-half, and an 11.5 per cent profit rise in fuel distribution to 18.8 billion.

They more than offset an 8.7 per cent fall in profit from oil and gas production to 28.3 billion yuan, and a widening of loss from chemicals production to 3.97 billion yuan from a loss of 409 million yuan.

Jefferies Securities’ analysts said in a research note that investors were “too distracted” by the stake tender and Sinopec will be “hard pressed” to deliver much profit growth for years to come.

They expected falling diesel demand will pare refining profit margins in the year’s second-half, during which oil and production profit will also likely be hit by higher costs, since costs “have historically been back-end loaded.”

Barclays’ analysts said in a note they saw little further upside in the second-quarter’s US$7 per barrel refining profit margin, and they have been drifting down in the third quarter after Beijing cut fuel prices twice.