Large-cap Chinese integrated oil company China Petroleum & Chemical Corporation, or Sinopec (SNP) is being kept a Buy this morning after a strong first quarter [Q1] earnings report. Zacks senior Chinese market analyst Paul Cheung, CFA provided details in his latest report:
Sinopec recently reported strong quarterly results for the first quarter of 2007. While a number of uncertainties remain, we believe that the near- to medium-term environment supports its continued upstream production growth and downstream capacity expansion. Moreover, Sinopec's integrated petrochemical and refining businesses are expected to benefit from possible price reform for refined products in China. Therefore, we are maintaining our Buy recommendation on Sinopec.
While there are uncertainties including government price controls that may squeeze downstream margins, volatility in crude oil prices, and rising domestic competition, we believe that the near to medium-term environment remains supportive to its upstream production growth and downstream capacity expansion. Moreover, Sinopec has the most integrated petrochemical and refining businesses in China and possible refined-product price reforms will benefit it.
Currently, SNP ADRs [American Depositary Receipts] are trading at 11.6x our 2007 earnings estimate, similar to its global and Chinese peers. SNP ADRs are also trading at 10.9x our 2008 earnings estimate, still similar to its global and Chinese peers. Given the company's good position to leverage China's strong economic growth, we see upside potential from current levels. Our $100.00 price objective reflects a P/E [price-to-earnings] multiple of 12.2x our 2008 earnings estimate.
Read the analyst report on SNP