Shanghai Petro a Hold, Near-Term

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

The company expects its first half 2008 net profit to decline 50% from the year-ago period. Thus, we rate the stock a Hold with a six-month target price of $33.00. Currently, the ADS is trading at 7.0x our 2008 EPADS estimate of $4.31.

Revocation of government price controls in the future, higher crude oil prices, and increased competition are some of the major concerns for the company. However, its strong fundamentals, strong management and operating efficiency are expected to improve stock performance in the future. Hence, we rate it a Hold. Our target price of $33.00 is 7.7x our 2008 EPADS estimate.

Read the full analyst report on SHI