Back to top

Analyst Blog

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

Refining giant China Petroleum and Chemical Corporation (SNP - Analyst Report), also known as Sinopec, plans to acquire some of its parent company’s – Sinopec Group – overseas upstream oil and gas assets. The assets would be acquired once the parent company is through with its restructuring exercise and their evaluation.

The purchase forms a part of the company’s strategy to obtain hydrocarbon reserves and expand its business to reduce the effect of oil price volatility. The chairman of Sinopec said that it will need financing from external sources to fund the transaction. No other particulars concerning the schedule or other details about the proposed purchase were revealed by the company.

Sinopec recently reported first half 2012 net income of 24.5 billion yuan (US$3.87 billion) and earnings per share of 0.272 yuan ($4.30 per American Depository Share [ADS]), both down approximately 40.5% and 41.1%, year over year, respectively.

The company’s performance was affected by the slump in prices of domestic fuel products in the second quarter and a sluggish economy, which resulted in weak demand for chemical products. Moreover, Sinopec’s downstream refining segment operations were also hit by government restrictions on passing the price hike to consumers.

Owing to rising raw material prices and domestic price ceiling on refined products, Sinopec is keen on buying assets abroad. Sinopec obtains majority of its revenue from downstream activities unlike its peers PetroChina Co. Ltd. (PTR - Analyst Report) and CNOOC Ltd (CEO - Analyst Report), whose activities are concentrated in their upstream operations.

Recently, the Wall Street Journal reported that Sinopec Group is looking to purchase an equity stake in the $2.5 billion Texas clean energy project. Total investment, along with contributions from Chinese banks, is estimated at a maximum of $1 billion.

Should the transaction go through, it will be one of the biggest by a Chinese company in the U.S. power sector. The deal is expected to be announced in September this year with full financial details and the size of the stake.

Sinopec Group hopes to gain experience in carbon dioxide flooding through this project, which will enhance its output while extracting oil. Therefore, the company’s quest to purchase assets abroad will enhance its oil and gas yield and help to mitigate the increasing loss from gasoline and diesel sales at state-controlled prices.

Sinopec holds a Zacks #4 Rank (short-term Sell rating). Longer term, we are maintaining our Underperform recommendation on the stock.
 

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
DIXIE GRP IN DXYN 15.84 +7.90%
BOFI HLDG IN BOFI 85.30 +4.97%
RAMBUS INC RMBS 12.31 +4.41%
VIPSHOP HOLD VIPS 148.73 +4.35%
NETFLIX INC NFLX 345.74 +4.32%