[ET Net News Agency, 16 July 2018] HSBC Global Research lifted its target price for
Sinopec Shanghai Petrochemical (SPC)(00338) to HK$6.31 from HK$5.67, and upgraded its
rating to "buy" from "hold".
The research house expects refining operating margins to improve in 2018, boosted by
China's tighter fuel specs and optimised product mix. Oversupply in the refinery market
will undoubtedly emerge after private mega-sized projects commence in 2H, as expected, but
HSBC believes SPC will still benefit from higher product specs and better profitability.
It noted that the company's strong balance sheet, modest leverage and strong cash flow
should continue to support relatively high payouts and an attractive dividend yield.
HSBC increased its petroleum operating profit forecast to 12%/25%/41% and total
operating profit to 6%/2%/3% in 2018-20, respectively, after reflecting 1H margin and
expanded margins under IMO 2020 (the low-sulphur cap regulations), leading to a more level
refining profitability. As a result, it increased its net profit forecast to 5%/11%/17%.
HSBC also increased its dividend payout forecast to 55%. (KL)