We are upgrading China Petroleum & Chemical Corp. (SNP) to Outperform from Neutral. An increasing trend in production and sales volumes could result in 2010 being a high-profit year for Sinopec, in our view.
This will be further amplified by an improvement in realized oil and gas prices. Though the company’s asset structure is downstream-weighted, Sinopec’s leverage to the lucrative Chinese market is expected to help sustain its growth momentum.
Additionally, we believe Sinopec should benefit from potential E&P asset injections, which may act as a positive share price catalyst. In addition, last year’s $7.5 billion Addax acquisition should help Sinopec to boost offshore deep-water exploration.