Sinopec’s net profit fell 36% YoY to RMB23.8bn in 1H25 under IFRS, 8% ahead of our forecast. The discrepancy mainly came from the higher-than-expected profit of its E&P and refining segments and earnings from associates and JVs. We expect the company’s earnings to drop 12% HoH in 2H25 given the expected decline in oil price. We increase our 2025-27 earnings forecasts by 3-6% and raise our target price for its H shares to HK$4.78. Reiterate HOLD.

Key Factors for Rating

Sinopec saw lower earnings or bigger losses YoY for all segments in 1H25. The decline in oil price not only resulted in lower upstream earnings, but also caused RMB15.5bn YoY loss in value of inventory for refining and marketing segment combined. The loss of chemical segment worsened as severe competition continued to depress margins.

In 1H25, the operating profit of its E&P segment dropped 19% YoY to RMB23.6bn, 19% above our forecast. The discrepancy mainly came from the higher-than-expected realised oil price (US$67.0/bbl vs US$66.5/bbl) and lower- than-expected lifting cost (US$14.1/BOE vs US$14.4/BOE). On top of this, the profit on imported LNG also increased RMB0.3bn YoY.

The operating profit of its refining business fell 50% YoY to RMB3.5bn in 1H25, RMB3.2bn above our forecast. In particular, it posted a profit of RMB1.1bn in 2Q25 vs our expected loss of RMB2.1bn as its refining margin only contracted US$0.4/bbl QoQ in 2Q25 vs our forecast of US$1.8/bbl QoQ decline on improved profits of minor products and increased utilisation of more competitive plants.

We forecast Sinopec’s earnings to drop 12% HoH in 2H25. We expect the average price of Brent to drop 8% HoH on severe oversupply in the global oil market in 4Q25. The company also usually books higher cost in 2H of a year.

Key Risks for Rating

Sharp rise in oil price.

Higher-than-expected profitability of its downstream operations.

Valuation

We increase our target price for its H shares from HK$4.59 to HK$4.78 to reflect the increase in our earnings forecasts and dividend forecasts. Our target valuation is still 6% average 2025-27E dividend yield.

We also raise our target price for its A shares from RMB6.24 to RMB6.46. We still base our target price on its 3-month average A-H premium, which has narrowed from 48% to 47% since mid-August.