China Petroleum and Chemical Corporation
), also known as Sinopec, reported first half 2012 net income of
24.5 billion yuan (US$3.87 billion) and earnings per share of 0.272
yuan ($4.30 per ADS), both down approximately 40.5% and 41.1%, year
over year, respectively.
Slower domestic economic growth was largely responsible for the
decline. Moreover, increases in the price of international crude
oil - amid government caps on fuel prices - prevented the company
from fully passing on spiraling costs to consumers, and thereby
hurt refining margins.
However, first half revenue surged 9.3% to 1,348.1 billion yuan
from 1,233.3 billion in the year-earlier period mainly attributable
to higher contributions from the upstream exploration and
During the six-month period ending June 30, 2012, Sinopec's crude
oil production expanded 4.3% year over year to 163.09 million
barrels, while natural gas volumes surged 14.1% to 289.78 billion
cubic feet. Domestic crude oil production increased marginally by
1.2% year over year to 151.96 million barrels though overseas
volumes increased considerably by 82.5% year over year.
A sharp rise in crude oil and natural gas prices as well as an
increase in natural gas and crude oil sales volume lifted the
Exploration and Production (E&P) segment's operating profit by
16.8% over the prior-year period to 40.5 billion yuan (US$6.40
The company's refining business recorded crude oil processing
volumes of 109.76 million tons (up 1.1% year over year) and refined
oil products output of 65.95 million tons (up 4.0% year over year).
However, the segment registered an operating loss of 18.5 billion
yuan (US$2.92 billion) as crude oil price jumped significantly amid
domestic control over the refined oil products prices.
The Marketing and Distribution segment sold 82.67 million tons of
refined oil products, reflecting a 2.8% year-over-year increase.
The segment's operating profit was 20.3 billion yuan (US$3.21
billion), up 3.3% from the comparable period last year.
The output of ethylene from the Chemicals segment was 4.810 million
tons, down 4.1% from the year-ago level. Operating loss from this
segment was 1.3 billion yuan (US$0.21 billion). The
underperformance was mainly due to a weak chemical market and a
sharp fall in prices of important chemical products.
Capital expenditures for the first half of 2012 totaled 51.504
billion yuan, of which 21.839 billion yuan was spent on exploration
at projects in key oilfields, including Shengli shallow water
oilfield, northwest Tahe Oilfield, Ordos oil and gas fields,
natural gas exploration and development in Sichuan and the Shandong
In the Refining segment, Sinopec spent 10.427 billion for product
quality upgrades, overhauling the refinery projects in Sinopec
Shanghai Petrochemical and Jinling Petrochemical Corp.
The Marketing and Distribution segment expended 12.39 billion yuan
for the construction of gas stations on highways, in important
cities and newly planned regions. Capital expenditures in the
Chemicals segment totaled 6.341 billion yuan, mainly due to the
construction of the Wuhanethylene plant, the Yanshan butyl rubber
project and the Yizheng butylene glycol project.
Beijing-based Sinopec, Asia's largest refiner in capacity terms,
expects to produce 163.75 million barrels of crude in the second
half of the year. The guidance includes 9.14 million barrels from
overseas. The refiner has also a target of processing 112 million
tons of crude during the period.
Sinopec highlighted that China will likely make some changes in its
monetary or fiscal policies in the second half to maintain stable
economic growth. It also aims at encouraging demand for fuel and
chemical products that would create a positive market environment
for Sinopec's businesses.
We remain apprehensive about the volatile oil and gas fundamentals
and a weak macro environment. We believe that Sinopec's matured
domestic oil fields and the associated rise in costs will continue
to be an overhang on its operations as natural declines become
pricier to counterbalance.
Sinopec remains more exposed to government directed price controls
owing to its large downstream refining and petrochemicals
operations compared to its peer company
) − China's largest listed oil company by capacity. Notably,
Sinopec, along with other two largest oil companies in China −
) posted lower earnings in the first half.
The company expects to face challenges in 2012 due to complex
geopolitical tensions and higher oil prices internationally.
Domestic economic growth is experiencing a downward pressure. As
such we are maintaining our Underperform rating on Sinopec, which
retains a Zacks #4 Rank (short-term Sell rating).
CNOOC LTD ADR (CEO): Free Stock Analysis Report
PETROCHINA ADR (PTR): Free Stock Analysis
CHINA PETRO&CHM (SNP): Free Stock Analysis
To read this article on Zacks.com click here.