Sinopec 2010 Net Rises 14% But Misses Forecasts On Refining Loss

Hong Kong — China Petroleum & Chemical Corp. (0386.HK), or Sinopec, Asia’s largest oil refiner by capacity, said on March 27 its 2010 net profit rose 13.7% from a year earlier, slightly below expectations, dragged down by a sizable loss in its refining business.

Net income for the 12 months ended December 31 rose to RMB 71.8 billion from 63.1 billion the year before, according to international accounting standards, the company said in a statement to the Hong Kong stock exchange.

The result lagged behind the average forecast of RMB 72.39 billion based on a poll of 15 analysts by Thomson Reuters. The main drag was the oil refining segment, which posted a 42% drop in net profit to RMB 15.86 billion last year, down from RMB 27.51 billion the previous year.

Refining profit margins have been squeezed by rising crude imports costs and government-controlled domestic fuel prices. The company is more vulnerable than its domestic rivals to price spikes in crude oil imports, which account for over 70% of its total crude supply. However, Beijing has kept a tight grip over refined oil prices in the face of escalating inflation. Therefore, it is hard for Sinopec to pass on higher crude oil costs to customers through fuel price increases.

Revenue rose 42% year-on-year to RMB 1.91 trillion from RMB 1.35 trillion thanks to sharp gains contributed by Sinopec’s upstream exploration and production segment.

Its oil and gas producing segment posted an operating profit of RMB 47.15 billion last year, up from RMB 23.89 billion, benefitting from higher oil prices.
In 2011, the company plans to produce 45.59 million tons of crude oil, refine 222 million tons and sell 147 million tons of refined products. Its capital expenditure will rise to RMB 124.1 billion this year from RMB 113.7 billion a year ago, mainly focusing on exploration and production.

Market analysts remain cautious about the company’s profit outlook this year since its refining business will remain under pressure due to the domestic fuel pricing system and higher crude oil import prices.

“Stabilising prices is no doubt the top priority for the central government this year, which might dampen the profit margin of Sinopec in the coming year as the global crude oil price is likely to rise further,” said Ming Haijun, an analyst with Guotai Junan Securities.

Political turmoil in the Middle East and market speculation should keep crude oil around $100 a barrel throughout this year, Sinopec said in the statement.

“Our refining margins in the first quarter are likely to be lower than our fourth quarter results for 2010,” Xinhua Wang, chief financial officer of Sinopec, said at a news conference after the earnings results were released.

PetroChina and CNOOC, its two domestic peers, both reported record profit growth in 2010. PetroChina reported net profit up by 36% to 140 RMB billion yuan last year, while CNOOC’s 2010 net income rose 85% to RMB 54.4 billion yuan.

The company stock declined 2% to HK$7.69 on Monday after announcing the earnings results. Sinopec advanced 24% in Hong Kong trading last year, outperforming the 9.1% gain in the benchmark Hang Seng Index.