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Sinopec (SNP) 1H19 Profit Declines on Weak Refining Business

Zacks Equity Research

China Petroleum and Chemical Corporation SNP, also known as Sinopec, reported earnings per share of 0.259 yuan for the first half of 2019, down almost 25% from 0.344 yuan a year ago. The lower profit was led by a rise in crude procurement expenses which hurt the refining business, narrowing of the retail spread and lower gross margin at chemical operations. 

Dividend

The company’s board of directors declared an interim dividend of 0.12 yuan per share, showing a decline of 25% from the year-earlier period.

Operational Performance

Exploration and Production: During the first half of 2019, Sinopec’s crude oil production fell 1.4% year over year to 141.68 million barrels. Nonetheless, natural gas volumes increased 7% year over year to 509.50 billion cubic feet. Domestic crude oil production inched up 0.3% year over year to 124.05 million barrels, while overseas volumes fell 11.6% year over year to 17.63 million barrels. Total oil and gas production rose 0.9% year over year to 226.63 million barrels of oil equivalent.   

Higher natural gas production primarily helped the segment report earnings before interest and tax (EBIT) of 7,977 million yuan, significantly higher than 677 million yuan reported in the year-ago period.

Refining: The company’s Refining business saw a 2.7% year-over-year growth in refinery throughput to 123.92 million tons. It also produced 78.94 million tons of petroleum products, up 3.4% from the prior-year period’s levels.

Despite higher throughput volumes, the segment reported EBIT of 18,606 million yuan, down 52.8% year over year from 39,431 million yuan owing to higher crude procurement expenses.

Marketing and Distribution: The segment sold 126.91 million tons of refined oil products, up 9.6% year over year.

From this segment, the company generated EBIT of 16,430 million yuan, down from the year-ago period’s 18,322 million yuan owing to narrowing of the retail spread.

Chemicals: The segment recorded an operating profit of 13,777 million yuan during the first half of 2019, down 27.2% year over year owing to lower gross margin.

Outlook

Sinopec expects the global economy to experience slower growth rate through the second half of 2019 owing to economic and political turbulences.

The integrated energy firm projects production of oil in the second half at 142 million barrels and natural gas at 507 billion cubic feet. Over the period, the company expects crude processing volumes of 124 million tons.

Capital Expenditure

Capital expenditures totaled 42.9 billion yuan. Of this, 20.1 billion yuan was spent on exploration and production projects. Sinopec spent 8.8 billion yuan on the Refining segment, while the Chemical Business segment was allocated 5.7 billion yuan. The company had set aside 8.1 billion yuan for the Marketing and Distribution segment.

Zacks Rank & Stocks to Consider

Sinopec currently carries a Zacks Rank #3 (Hold). Meanwhile, a few better-ranked players in the energy space include World Fuel Services Corporation INT, Delek Logistics Partners, L.P. DKL and TC PipeLines, LP TCP. While World Fuel sports a Zacks Rank #1 (Strong Buy), Delek Logistics and TC PipeLines carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.     

World Fuel beat the Zacks Consensus Estimate in each of the prior four quarters, the average positive earnings surprise being 16.4%.

Delek Logistics is likely to see earnings growth of 4.9% through 2019.

TC PipeLines has an average positive earnings surprise of 12.6% for the past four quarters.

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