Sinopec’s net profit dropped 15% QoQ to RMB8.3bn in 3Q25 under IFRS, 26% below our forecast. The discrepancy mainly came from the lower-than-expected profits at refining and marketing segments. We estimate its earnings to drop 22% QoQ in 4Q25 as the expected decline in oil price should adversely affect the earnings of its E&P, refining and possibly marketing segments. We cut our 2025-27 earnings forecasts by 12-14% after post-results adjustments. We reiterate our HOLD calls on the company with the target price of its H shares reduced to HK$4.21.

Key Factors for Rating

While the operating profit of Sinopec’s refining segment jumped 2.3x QoQ to RMB3.7bn in 3Q25, it was 33% below our forecast. Its refining margin somehow just improved US$0.5/bbl QoQ vs US$1.9/bbl expected. It was probably due to the weak prices of minor products. In addition, the operating profit of its marketing surprisingly dropped 27% QoQ to RMB2.7bn in 3Q25, 43% below our forecast, despite a 5% QoQ increase in domestic sales volume of refined oil products. The miss was mainly caused by increase in staff cost related to insurance. The lower-than-expected profits at these two segments largely explained the miss in 3Q25 earnings.

The other two segments were doing relatively well. The operating profit of the E&P segment grew 10% QoQ to RMB11.8bn on a 4% QoQ increase in realised oil price and a 7% QoQ gain in realised gas price. The operating loss of its chemicals segment narrowed 6% QoQ to RMB2.9bn despite narrowing key chemical spreads through diversification of feedstock and optimisaton of product mix.

We expect Sinopec’s earnings to drop 22% QoQ to RMB6.5bn before any further impairments. We expect the average price of Brent to drop 8% QoQ to US$63/bbl given the significant oversupply in the global oil market. This will not only result in lower earnings for the E&P segment, but also drag the earnings of refining and possibly marketing segments through inventory loss.

Key Risks for Rating

Sharp rise in oil price.

Higher-than-expected profitability of its downstream operations.

Valuation

We reduce our target price for its H shares from HK$4.78 to HK$4.21 given the cuts in our earnings forecasts. Our target valuation remains 6% 2025-27E average dividend yield.

We also lower our target price for its A shares from RMB6.46 to RMB5.54. We still set our target price based on its 3-month average A-H premium which has narrowed from 47% to 44% since late August.

Changes in Earnings Forecasts

We cut our 2025-27 earnings forecasts by 12-14% under IFRS. The biggest cuts go to the refining and marketing segments given the miss in 3Q25. We now expect the refining segment to be more or less breaking even in 4Q25 given the further pressure on refining margin from the recent rise in oil tanker freight rate and the short-term negative impact from the expected drop in oil price. We also reduce our forecasts slightly for the other two segments after some adjustments after working through our model with the results.