Sinopec Earnings: Resilient Upstream Earnings Offset by Weak Downstream Segments; Shares Undervalued

China Petroleum & Chemical Corp’s, or Sinopec’s, first-half 2023 net profit of CNY 36.1 billion was down 19% year on year, broadly in line with our expectation, with resilient upstream income offset by weak refining and chemicals earnings. After considering our latest energy price and foreign exchange assumptions, we increase our 2023-25 earnings estimates by 3%-13% and raise our fair value estimate to HKD 5.60 per H-share (CNY 5.10 per A-share) from HKD 5.50 (CNY 4.84). We think Sinopec’s H-shares are currently undervalued, and the estimated 2023 dividend yield of more than 10% and share buyback plan should support share prices. That said, concerns about downstream demand due to China’s slowing economic growth could weigh on its share price performance in the near term.