Shanghai Petrochem Branches Out

Shanghai Petrochemical’s (SHI - Analyst Report) exposure to the fast-expanding Chinese economy and strong petrochemical product demand make us confident of strong volume growth. However, future revocation of government price controls, higher crude oil prices and increased competition are some of the major concerns for the company.

Thus, we rate the stock a Hold with a six-month target price of $42.00. This is 9.7x our 2008 EPADS estimate.

Our outlook for the Chemical and Fertilizer industry is positive. Investors should over-weight chemical stocks now. The group is likely to outperform the S&P in the next six months. We should see earnings that are in-line expectations.

We view the current expansion of SHI’s refining capacity as a clever move, which will lower input costs. The company recently entered into a joint venture with Kuwait Petroleum Company, to build an oil refinery and also plans to develop the Yadavaran oil field in Iran. Shanghai Petrochemical also has a sound cash position.

Read the full analyst report on SHI