Strong Growth at Shanghai Petro

Tags: shi
1 May 11:46pm
Posted by ZacksResearch
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Shanghai Petrochemical's (SHI) exposure to the fast-expanding Chinese economy and strong petrochemical product demand make us confident of strong volume growth. Moreover, long-term growth in China and a low valuation give us a positive outlook on the stock.

In the first quarter of 2008, the company recorded a net loss of $25.98 million, compared to a profit of $138.45 million in the prior-year period. The company reported a loss per share of $0.01 in the first quarter of 2008. Substantial increase in international crude oil prices affected earnings. For the same quarter, the company reported an operating loss of $55.7 million.

The company is aiming to increase its refining volumes through capacity expansion. We view the current expansion of its refining capacity from 8.8 million tons per annum (TPA) to 14 million TPA as a clever move. This capacity expansion will enable the company to produce additional feedstock for the ethylene expansion.

By 2010, management expects SHI to be equipped with 16 million tons of crude oil processing capacity and 1.6 million tons of ethylene production capacity, enabling it to have a strong foothold in international markets. Currently, the ADS is trading at 9.4x our 2008 EPADS estimate of $4.31. Moreover, we expect the company's strong fundamentals to improve the stock's performance in the coming term. Hence, we rate it a Buy and set a target price of $46. This is 10.7x our 2008 EPADS estimate.

Read the full analyst report on SHI.




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