Sinopec Earnings: Upstream Continues to Shine, Offsets Downstream Weakness; H-Shares Undervalued

Sinopec’s 3% year-on-year rise in first-half net profit to CNY 37.1 billion is broadly in line with our estimate. Sluggish refining, marketing, and chemicals segments contributions were offset by resilient upstream earnings, as expected. After considering our latest energy price and foreign exchange assumptions, we increase our 2024-26 earnings estimates by 1%-7% and raise our fair value estimate to HKD 6.10 per H-share (CNY 5.60 per A-share) from HKD 5.90 (CNY 5.40). We think Sinopec’s H-shares are attractive, supported by a 2024 dividend yield of more than 7% and its ongoing share buyback. Sinopec’s commitment to pay out a minimum 65% of profit as dividends for 2024-26 is a mild positive, but we already forecast about 70% payout for the next three years.