Net profit for the operator of China's largest oil refinery, Sinopec Zhenhai Refining and Chemical, is forecast to increase by 15 per cent year on year in 2003. Sun Hung Kai Research says in a report that net profit will reach 1.1 billion yuan, boosted by higher throughput volume and petroleum product prices.
Net profit in 2004 is estimated to increase a further 21 per cent year on year, thanks to 7 per cent growth in throughput, new earnings from downstream chemical products and cost-saving measures.
However, the researcher says the stock is over-valued, and has downgraded its recommendation from 'buy'' to 'sell''. Based on a valuation of 13.5 times the 2004 price/earnings ratio, a 12-month target price of HK$6.80 has been set, compared with $7.10 on January 27. The counter closed at $6.85 on Friday.
The report say the stock is trading on 14 times 2004 earnings per share and is expected to underperform other petrochemical stocks. Profitability will largely depend on the refinery margin, which is usually lower than the downstream chemical operation. Compared with other chemical operators, such as Shanghai Petrochemical and Beijing Yanhua, Zhenhai will benefit less from the sector upturn.
