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Eric Ng

Toh Han Shih

Leading state-owned enterprises China Petroleum & Chemical Corp (Sinopec), Aluminum Corp of China (Chalco) and China Railway Group  are warning of a more than 50 per cent drop in their  net profits for last year,  when they release detailed earnings  later.
The news is expected to prompt analysts to  revise  their profit forecasts.
Sinopec, the country's second-largest oil and gas producer, yesterday blamed the profit decline on huge first-half refining losses  stemming from the surging cost of imported crude oil and state control  on refined fuel prices.
The firm also cited tumbling petrochemicals demand and prices in the second half.
Sinopec posted a profit of 54.95 billion yuan (HK$62.36 billion) in 2007 based on mainland accounting standards, and 56.53 billion yuan by  international standards.
According to a  consensus forecast compiled by Thomson Reuters, the energy company  had a 41.9 per cent drop in profit to 32.83 billion yuan last year, based on mainland standards, and a 28.3 per cent decline to 40.55 billion yuan  by international standards.
Chalco, the mainland's biggest alumina and aluminium producer,  blamed last year's profit drop to falling metal prices and slowing demand  because of the global recession, as well as snowstorms in China  last year.
Analysts widely expected Chalco's earnings to  fall sharply after it posted a 72 per cent plunge in net profit for the first nine months of last year and reduced production in the fourth quarter.
The company  would post a loss  for the fourth quarter last year and  see earnings plunge 81.8 per cent  to 1.86 billion yuan for the whole of last year, based on international standards, analysts said.
They expect a 73.8 per cent decline to 2.68 billion yuan, based on mainland standards.
China Railway yesterday attributed the profit decline to 'a considerable loss' in  the proceeds from its Hong Kong listing due to foreign exchange losses.
Shares in the rail construction giant  slid 9.6 per cent to HK$4.33 on Wednesday.
UOB Kay Hian analyst Mark Po Ka-kit attributed the share price drop to speculation that the Hong Kong and Shanghai-listed firm suffered 'huge foreign exchange losses' in the fourth quarter of last year.
The stock dropped a further 3.7 per cent to HK$4.17 yesterday.
'According to our discussions with China Railway's management, the foreign exchange loss is mainly related to the company's considerable Australian dollar exposure,' wrote Mr Po in a research note.
For the fourth quarter of last year, China Railway's foreign exchange loss was 481 million yuan, as the Australian dollar depreciated 11 per cent against the yuan,  Mr Po said.
In October last year, China Railway reported a net foreign exchange loss of 1.94 billion yuan for the first nine months.
If Mr Po's estimate is accurate, China Railway would book a foreign exchange loss of 2.42 billion yuan for the whole of  last year.
Analysts had expected its profit to rise 26.4 per cent  to 3.06 billion yuan.
Steep decline
The 2008 profit forecast for Sinopec is a 41.9 per cent drop to, in yuan: yuan 32.8b



Sinopec, Chalco, China Railway warn of 50pc profit declines