Sinopec to post losses in 2008 - CLSA

11 January 2008 10:26  [Source: ICIS news]

MUMBAI (ICIS news)--Brokerage firm CLSA expects Sinopec to post losses for the 2008 fiscal due to the Chinese government’s decision to crack down on domestic refining margins and a temporary freeze on product prices to fight inflation, it said on Friday.

The brokerage said the company had been a victim of the country’s anti-inflation campaign and it fears the duration of the freeze could be longer than expected.

“Without the ability to pass on its persistently high crude costs to the downstream market, Sinopec is skating on thin ice. At $95/bbl oil, Sinopec could turn loss-making in 2008,” CLSA said.

“China had dealt Sinopec a death sentence by freezing gasoline and diesel prices, directly crushing the firm’s already razor-thin 5% net profit margin amid rising processing costs, as Beijing rolled out the Euro IV fuel standard,” it added.

The brokerage has a “sell” rating on the stock, with a 17% downside to its HK$9.00 ($0.86)/share price target.

Although China hiked domestic fuel prices in November, the average 10% increase is not enough to turn around Sinopec’s loss-making refining business as crude prices continue to hover near record highs, CLSA said.

With this price freeze, deteriorating refining losses of first quarter 2008 will drag on profit growth from other business divisions also, it added.

Shares of the company closed 2.6% down at HK$10.48 on the Hong Kong Stock Exchange.

($1 = HK$ 7.80)

By: Isha Jha
+65 6780 4359

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