Sinopec’s earnings dropped 25% YoY to RMB14bn in 1Q25 under IFRS, 7% higher than our forecast. The profitability of its E&P and chemicals segments was better than forecast. Looking ahead, the company’s earnings will drop significantly QoQ in 2Q25 if oil price stays at the current level following the sharp fall in early April. However, Trump’s fickle attitude towards his tariff war and his approach to Iran could trigger big swing in oil price. We revise our 2025-27 earnings forecasts by -1.3% to +3.2% after post-results adjustments. We reiterate our BUY calls with target price for its H shares at HK$4.58.

Key Factors for Rating

In 1Q25, most segments posted lower earnings YoY. The operating profit of its E&P segment slipped 8% YoY to RMB12.9bn mainly on 5% YoY drop in realised oil price. That of its refining segment plummeted 65% YoY on US$1/bbl YoY decline in refining margin and 4% YoY increase in unit cash operating costs. The operating profit of its marketing segment dropped 47% YoY to RMB4.2bn on 5% YoY decline in domestic sales volume of refined oil products and an RMB2.6bn YoY decline in value of inventory. The only positive was the chemicals segment whose operating loss narrowed 25% YoY to RMB1.2bn as its ethylene output surged 18% YoY following Tianjin Nangang Ethylene started commercial operations in December 2024. n The price of Brent dropped US$12/bbl or 16% in four trading days in early April after Trump announced his so-called reciprocal tariff and OPEC+ brought forward the planned increase in output in June and July to May. If oil price stays at the current level up to end-June, Sinopec will see significant QoQ decline in earnings in 2Q25.

However, Trump has changed his minds a few times regarding his tariff war. It is increasingly clear that tariff war is just a means to force other countries to buy more US government treasury. Hence, his stance towards tariffs could change further and the impact on oil demand is likely to be not that significant.

Key Risks for Rating

Sharp fall in oil price.

Unexpected further huge impairments.

Valuation

We keep our target price for its H shares at HK$4.58. Our target valuation is still 6.5% average 2025-27E dividend yield.

We lower our target price for its A shares from RMB6.50 to RMB6.45. We still base our target price on its 3-month average A-H premium which has narrowed from 52% to 50% since late March.