One of China’s largest petrochemical companies, Sinopec Shanghai Petrochemical Company Limited (SHI) announced 2010 net income of RMB 2.8 billion or RMB 0.385 per diluted share, compared with RMB 1.7 billion or RMB 0.221 per diluted share a year earlier.
The positive comparisons can be primarily attributable to higher sales and volumes.
In 2010, Shanghai’s crude oil costs amounted to RMB 39.7 billion, representing 58.11% of its total annual cost of sales. The average unit cost of crude oil processed was RMB 3,925.56 per ton, up 29.98% year over year.
The group continues to carry out various energy-saving and emissions reduction measures in agreement with the State’s relevant energy conservation and emissions reduction requirements, thereby curbing its overall energy consumption by 17.9% from the year-ago period.
Industrial water consumption was down 16.0% compared to the previous year; and industrial water recycling rate remained at above 96%.
Higher Selling Prices Drive Revenues
In 2010, Shanghai’s net sales were up 52.3% year over year to RMB 72.1 billion, reflecting 38.35%, 21.50%, 104.33%, and 51.89% improvement in net sales derived from synthetic fibers, resins and plastics, intermediate petrochemical products and petroleum products, respectively.
The increase in sales was primarily driven by higher selling prices. For the year, the average prices of the company’s synthetic fibers, resins and plastics, intermediate petrochemical products and petroleum products were up 32.89%, 15.73%, 30.09% and 26.23%, respectively, from the previous year.
Production Update
Shanghai’s output-to-sales ratio and receivables recovery ratio were 99.97% and 100.12%, respectively. Shanghai processed 10,520,700 tons of crude oil, up 20.1% from the previous year. Production output of gasoline, diesel and jet fuel increased 25.3% from the year-ago period.
Output of gasoline was 932,400 tons, up 15.7% year over year; output of diesel was 3,675,900 tons, up 31.2% from the previous year; and output of jet fuel was 765,700 tons, up 12.8% over the previous year.
Shanghai produced 972,900 tons of ethylene and 523,200 tons of propylene, up 4.9% and 7.3%, respectively, over the previous year. Production of synthetic resins and copolymers were up 4.0% year over year to 1,133,700 tons.
Production of synthetic fiber monomers (950,100 tons) and synthetic fiber polymers (643,200 tons) were up 86.8% and 7.3%, respectively, from last year levels. Synthetic fibers produced during 2010 (253,600 tons) was up 5.1% from the previous year.
Project Development
During 2010, Shanghai benefited from the completion and operation of its entire Phase 5 Project and started the construction of the Phase 6 Project consisting of the oil refining renovation project as the key component.
About the Company
Established in 1993, Sinopec Shanghai’s principal activity involves the processing of crude oil into petrochemical products for sale.
Sinopec Shanghai’s highly integrated petrochemical complex processes crude oil into a wide range of synthetic fibers, resins and plastics, intermediate petrochemicals and petroleum products. A significant portion of its products are sold in the Chinese domestic market. Sinopec (SNP), a state-owned entity, currently holds a majority stake of 55.56% in Sinopec Shanghai.
Our Recommendation
We are maintaining our long-term Neutral recommendation on the company.
Sinopec Shanghai is poised to benefit from the country’s continuous demand growth and its strategic positioning in a fast-growing economy. We also like Sinopec Shanghai’s unique vertically-integrated business model, whereby the company can use its intermediate petrochemicals in manufacturing downstream products.
However, a downstream-centric assets portfolio and government caps on refined product prices remain concerns. In particular, the bearish refining margin outlook has become a major liability, in our view.
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