Net income increased 36 percent from a year earlier to 16.8 billion yuan ($2.2 billion) in the three months ended June 30. Beijing-based Sinopec, as the company is known, didn't break out quarterly numbers, which Bloomberg derived from first-half results reported yesterday. First-quarter profit almost doubled.
A rebound in crude-oil costs and restrictions on raising fuel prices prompted CLSA Ltd. to cut earnings estimates and downgrade the stock. Sinopec, controlled by state-owned China Petrochemical Corp., said a government order to maintain stable gasoline supplies amid high international oil prices was an ``unfavorable factor'' for the second-half.
``Earnings growth momentum has clearly peaked, with refining margin deteriorating rapidly since late in the second quarter,'' Gordon Kwan, China energy research head at CLSA, said in a report. He cut his rating on the stock to ``underperform'' from ``buy.''
Sinopec's Hong Kong-traded shares rose 3.8 percent to HK$8.47 by the market's 4 p.m. close, trailing the 4.7 percent gain by bigger rival PetroChina Co. and the 7 percent advance by Cnooc Ltd., the nation's largest offshore explorer.
Oil Imports
Benchmark New York oil prices averaged 12 percent higher than in the previous quarter. Sinopec, Asia's second-largest company by sales, imports about 70 percent of the crude processed at its refineries.
The Chinese government this month ordered Sinopec, 76 percent-owned by China Petrochemical, and PetroChina to ensure fuel supplies during the peak summer season and to refrain from restricting sales.
State curbs on retail pump prices designed to limit inflation in the world's most-populous nation restrict Sinopec's ability to pass on higher costs. China's inflation surged to a 10-year high in July.
The company hasn't applied to the government for fuel price increases, Chairman Su Shulin told reporters in Hong Kong today. Sinopec is ``working'' to get a government subsidy for selling fuels below international prices, President Wang Tianpu said.
The company received a one-time 5 billion yuan subsidy at the end of last year to help cover raw material costs, after being handed 9.42 billion yuan a year earlier.
Beating Estimates
Sales climbed 3.5 percent to 279.9 billion yuan in the second quarter, based on first-half results. Huang Wensheng, a Beijing-based Sinopec spokesman, declined to comment on the derived numbers.
First-half profit surged 66 percent to 36.2 billion yuan, the company said in a statement, the fastest pace in four years. Earnings beat the median estimate of 35.1 billion yuan in a Bloomberg News survey of nine analysts. Sales rose 15.5 percent to 554.3 billion yuan.
Su presented his first set of results since becoming chairman this month following Chen Tonghai's departure in June. Analysts expect Su, a former executive at parent PetroChinaChina National Petroleum Corp., to seek oil fields to cut Sinopec's reliance on imported crude. Chen quit unexpectedly on June 22 for ``personal reasons.''
``We don't have any update on the latest about Mr. Chen,'' Su said. ``There will be no major changes at the company when an individual member of management changes.''
Refining Profit
Operating profit from refining was 5.49 billion yuan in the first half, compared with a loss of 16.6 billion yuan a year earlier, as the company benefited from lower oil prices early in 2007. Sinopec's first-half refining margin was 260 yuan a metric ton, compared with a loss of 93 yuan a year earlier, Chief Financial Officer Dai Houliang said today.
The refiner, which operates almost 29,000 filling stations, expanded oil processing 6.4 percent, turning 2.91 million barrels of crude a day into fuels and chemicals in the first half to supply the world's fastest-growing major economy.
Sinopec's expanded fuel production comes as Chinese buy more cars. Vehicle sales in the largest auto market after the U.S. may grow 18 percent to 8.5 million this year, the China Association of Automobile Manufacturers said in April. China's first-half vehicle sales rose 23 percent to 4.37 million, the association said on July 10.
Oil and gas exploration earnings dropped 34 percent to 22.8 billion yuan in the first half. The price Sinopec realized for the oil it produced fell 16 percent to 2,792 yuan a metric ton. Capital expenditure reached 33.8 billion yuan. The cost of extracting oil and gas increased 13 percent to 550 yuan a ton, Dai said.
Puguang Field
Sinopec added 42 billion cubic meters of reserves at the Puguang gas field in southwestern China's Sichuan province in the first half, Wang said today. The field had proven reserves of 356 billion cubic meters as of the end of last year, he said.
Sinopec paid 3.1 billion yuan in oil windfall taxes in the first half, compared with 3.6 billion yuan a year earlier, the company said today. The government in March last year started taxing oil producers on oil sold at more than $40 a barrel.
The company's domestic sales of fuels including gasoline and diesel rose 6.6 percent to 57.92 million tons in the first six months, it said in July. Retail sales increased 3.7 percent to 36 million tons.
Unit Sinopec Shanghai Petrochemical Co. said yesterday first-half profit surged to 1.8 billion yuan from 5.7 million yuan a year earlier, reflecting lower crude oil costs and rising fuel and chemical demand.
Estimates Cut
CLSA's Kwan cut his estimate for 2007 earnings by 10 percent, his 2008 projection by 18 percent, and 2009 by 11 percent to reflect lower profit from processing each barrel of oil.
``Gasoline should become a luxury good for Chinese consumers as China doesn't really have rich reserves to support subsidized energy consumption,'' said Lei Wang, co-portfolio manager of more than $14 billion including Sinopec shares at Thornburg International Value Fund in Santa Fe, New Mexico. ``We will monitor closely Sinopec's refining margin.''
In the second half of this year, Sinopec plans to produce 2 percent more crude than a year earlier, targeting 20.74 million tons. Gas output may rise 9.7 percent to 4.05 billion cubic meters, Dai said.
Oil processing at Sinopec's refineries may increase 4.8 percent to 78.25 million tons, while sales are targeted to rise 3 percent to 59.08 million tons of refined oil products from July to December, he said.
First-quarter profit almost doubled to 19.4 billion yuan from a restated 9.55 billion yuan a year earlier because of the drop in crude costs, Sinopec said April 15.
Sinopec's 2006 sales equivalent to $131 billion were second only among Asia's publicly traded companies to Toyota Motor Co.'s $205 billion.
Via: Bloomberg
by Ying Lou
