Today, China Petroleum and Chemical Corporation (SNP), aka Sinopec, reported its annual results for year ended December 31, 2009. Earnings per ADS in 2009 were $10.38, compared to the Zacks Consensus Estimate of $10.76 and 2008’s earnings of $4.17.
Net income for the period increased approximately 117% from the 2008 level to RMB 61.8 billion ($9.1 billion). The positive results reflect a steady growth in oil and gas volumes and profit from the refining business.
While Sinopec’s yearly results came in below our expectations, the company has declared a dividend of $2.64 per ADS in 2009. Sinopec’s results set the stage for CNOOC Ltd. (CEO), which is scheduled to report its annual results tomorrow.
Estimate Revisions Trend
Given the rebounding of oil products demand on the back of a recovery of the world economy, we see a mixed bag in estimate revisions. For the last 30 days, one of the 5 analysts covering the stock raised the estimate for the full fiscal 2010 while another lowered it. However, in the last 7 days, one analyst has lowered the estimate and none have moved in the opposite direction.
Currently, the Zacks Consensus Estimate for full fiscal 2010 earnings is $10.62 per ADS, which is well above the full fiscal 2009 earnings of $10.38.
Operational Performance
Sinopec’s crude oil production during the year rose nearly 1.5% from 2008 level to 42.42 million tons, while natural gas volumes increased 2.0% to 8.5 billion cubic meters. Due to a substantial decline in crude price, the E&P segment’s operating profit was RMB19.6 billion ($2.9 billion), a decline of 70.5% from 2008.
The company’s refining business recorded crude oil processing volumes of 183 million tons (a 6.7% increase over 2008) and production output of refined oil products of 113.7 million tons (a 5.9% increase). Operating profit of refining business recorded RMB23.1 billion ($3.4 billion), compared to an operating loss of RMB63.6 billion ($9.2 billion) last year.
The Marketing and Distribution segment sold 124 million tons of refined oil products, a modest increase from 2008, while the segment’s operating profit recorded RMB30.3 billion ($4.4 billion), a decline of 21.3% from 2008.
The company’s Chemicals segment output of ethylene reached 6.7 million tons. Operating profit for this segment was RMB13.6 billion ($2 billion), significantly increased from 2008.
Capital expenditures during 2009 totaled RMB110 billion ($16.1 billion), out of which exploration and exploitation spending stood at RMB51.6 billion ($7.6 billion). Debt-to-equity ratio at the end of 2009 stood at 27.96%.
The company will continue to promote the integration of exploration and development. In 2010, Sinopec plans to produce 42.55 million tons of crude oil and 12 billion cubic meters of natural gas.
Our View
China’s impressive economic growth has significantly increased its demand for oil, natural gas and chemicals. This growth momentum presents attractive opportunities for industry players that can meet the country’s fast-growing energy needs. Being one of the two integrated oil companies in China, Sinopec is well-positioned to capitalize on these favorable trends.
While last year’s Addax acquisition would help Sinopec to boost offshore deep-water exploration, we believe that the recent acquisition of an upstream asset in Angola will act as a positive share price catalyst.
Read the full analyst report on “SNP”
Read the full analyst report on “CEO”
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