State-run Sinopec is more vulnerable to rising crude oil prices than its domestic peer PetroChina, as it finds it harder to pass on high crude costs to consumers through oil product price hikes.
The downstream-heavy firm, valued at around $108 billion, is at the whims of China’s government, which regulates the price of oil products from gasoline to diesel aimed at mitigating the impact of price spikes on its citizens.
Analysts are cautious about the profit outlook for the energy giant in the coming year, saying Sinopec’s refining margins are likely to continue to be pinched by high crude oil prices.
“In 2011, the company will continue to increase resources, expand markets, cut costs and improve efficiency, while pursuing economic benefits,” Sinopec said in a statement to the Hong Kong stock exchange.
Beijing raised retail fuel prices on Feb. 20, the third increase since October, pushing fuel prices to record high levels.
Price controls remain a key drag for Sinopec, which has the largest sales and distribution network for refined products in China, but has to import more than 70 percent of its crude.
Petrochemical margins, however, are likely to be bolstered in the short term due to refinery and petrochemical capacity outages in Japan. Sinopec’s growth in its exploration and production division is also likely to provide some cushioning to refining losses.
Sinopec said on Sunday its net profit totaled 14.7 billion yuan for October through December, compared with 11.2 billion last year. The result compares with a consensus forecast of 16 billion from 28 analysts polled on Thomson Reuters Starmine.
Sinopec said it would make a greater push into its exploration and production segment, intensifying exploration efforts in frontier blocks for new discoveries in west China.
Fund managers and analysts say Sinopec is the cheapest Chinese oil stock and a good buy for longer term investors.
It has the lowest forward price-earnings ratio among China’s oil triumvirate at 7.1.
For the full year, the group posted a net profit of 70.7 billion yuan, versus 61.8 billion in 2009.
