Category: Money tips Release Date: 2006-10-16
Sun Development and Reform Commission issued a notice, according to changes in international oil prices, decided January 14, 2007 with effect from lower gasoline prices 220 per ton, aviation kerosene prices reduced 90 yuan per ton, diesel prices remain unchanged.
Development and Reform Commission to lower oil prices is mainly due to the rapid decline of crude oil prices. Brent crude oil prices from the end of August for more than 70 U.S. dollars / barrel down to the nearest 51.45 U.S. dollars / barrel, down 30%. Crude oil prices fall due to global warm winter, the United States in December than in the past year than the average temperature of 3.7 degrees was the highest level over the same period, the previous November is also the case, and in January weather in New York and once reached 20 degrees Celsius, The warm weather has greatly reduced the U.S. Northeast heating oil consumption.
International crude oil prices lower, directly triggered a decline in international oil prices, making domestic and foreign oil spreads considerably narrower. In accordance with our usual after-tax ex-factory price with the Singapore FOB price comparison caliber, the latest oil price differential levels of finished goods at home and abroad are as follows: Singapore gasoline prices are currently 63 U.S. dollars / barrel, folded into the price of RMB 3830 yuan / ton, this plays down 220 Yuan / ton, after-tax ex-factory price of domestic gasoline for 3979 yuan / ton, slightly higher than the domestic than international 150 yuan / ton, Singapore, the price of diesel is currently 65.85 U.S. dollars / barrel, folded into the price of RMB 3858 yuan / ton, In addition to the after-tax ex-factory price of domestic diesel 3628 yuan / ton, the domestic than international low 230 RMB / ton, taking into account domestic production of diesel, gasoline ratio of about 2:1, in the current price of domestic refined oil prices into line with the basic international .
After the cost of crude oil fell 30% after the fine-tuning of domestic refined oil prices fell only 4.2% of gasoline and diesel will remain unchanged, Sinopec's refining division earnings increase rapidly. First, from the perspective of the changes in refining margins, according to 16% of the yield of gasoline, aviation fuel 5% of the yield calculation, the reduction of gasoline, aviation fuel prices for the impact of refining margins declined by only 0.59 U.S. dollars / barrel. According to customs data, in November and December the price of domestic crude oil imports at 55 U.S. dollars / barrel level, and according to our estimates, Sinopec's refining margins in December and January of refining margins should be 5 U.S. dollars / barrel (price adjustment ago), while Sinopec's refining margins in the third quarter of 2006 was once reached -3 U.S. dollar / barrel, which means one to one to go, China's Sinopec for every barrel of oil refining, and now earn more than in the past eight U.S. dollars / barrel and above, but the price adjustment is to reduce China's Sinopec's refining margins 0.59 U.S. dollars / barrel, with Sinopec a huge improvement in refining margins compared to the lower oil price is only slightly reduced the sector, Sinopec's refining profit growth.
In addition, we need to point out that crude oil prices fell for the performance of Sinopec's upstream sector impact is relatively small, taking into account China Petrochemical 160 million tons of crude oil processing volume and 0.4 million tons of crude oil production, crude oil prices fell 1 U.S. dollars / barrel, oil refining departments to enhance their level of profit is the upstream sector reduced profit four-fold.
Take into account the price adjustment factors and the upper reaches of the decline in profits, we believe that Sinopec's refining sector due to a significant improvement in earnings this year, one quarter's results could be significantly more than 0.2 yuan. Sinopec first three quarters, the average refining margins in the -2.2 U.S. dollars / barrel, according to our estimates, in 2006, Sinopec -1 an average refining margin in U.S. dollars / barrel or so, if we assume an average of 2007, Sinopec refining margins of 4.41 U.S. dollars / bucket, then in 2007, Sinopec refining sector earnings growth of 460 billion yuan, equivalent to EPS increase of 0.37 yuan.
In addition, we would like to explore a question is: has also benefited from lower oil prices, also benefited from the appreciation of the renminbi, why is the performance of airline stocks is far better than the oil refining industry performance?
Recalling the August 2006 price of crude oil has dropped by 30%, the aviation industry: domestic fuel prices slightly down by 3%, while fares continued to decline, more than 15%, the market still think it is beneficial; oil refining industry: the cost of crude oil decreased by 30%, down 4.2% in domestic gasoline and diesel prices remain unchanged, the market is worried that refining profit decline? This fear is ridiculous.
Conclusion: We believe that the market for the country cut oil worries are unnecessary. The Government lowered oil prices, the act itself speaks for Sinopec's refining margins have been restored to a reasonable level, that is no longer a loss, from a loss to a profit of tens of billions tens of billions of change is enormous. In our model, for the Chinese petrochemical refining margin forecast for 2007 is only 3.6 U.S. dollars / barrel, while January's refining margins have reached 5-6 U.S. dollars / barrel. If the countries do not lower oil prices, we will substantially increase the profitability of Sinopec forecasts. We believe that the quarterly performance of Sinopec is a catalyst for higher stock prices.
In our 2007 annual strategy, we proposed "concern in 2007: asset revaluation and mechanisms of the resonance Reconstruction" (report on January 1, 2007 release), in fact, reduced to a simple diagram is Figure 6 (a detailed analysis of process please refer to the aforementioned report). We believe that the oil refining sector profitability improved significantly, from the huge loss to a reasonable profit (ie, after the sharp rebound bottom blue line), Sinopec net profit level will greatly increase the level of valuation will be significantly decreased while the overall market is still experiencing asset revaluation process, namely, upward valuation hub, so Sinopec shares in 2007 may be substantially higher. We believe that Sinopec may be the next 12 months or more than 100%, reaching a target price of 20 yuan (detailed analysis please refer to our annual report).
