[ET Net News Agency, 19 January 2018] Deutsche Bank lifted its target price for Sinopec
(00386) to HK$7.86 from HK$7.44, and maintained its "buy" rating.
The research house said US$60/bbl Brent is the "goldilocks" price for Sinopec, as its
upstream oil breakeven cost was at US$62/bbl in 2017 and the plan is to lower this to
US$55/bbl by 2020.
In 2017, Sinopec will likely lose RMB30bn from its upstream business, but those losses
will likely be significantly less in 2018 alongside the recovery in the oil price, DB
noted.
On the other hand, Sinopec's refining GRM spreads should continue to stay healthy at
US$9-10/bbl supported by GBV to GBVI upgrades in 2018. Sinopec's balance sheet is also
best-in-class, with the company likely reaching a net cash position by end-2018.
Given Sinopec's strong cash flow position with a 12-14% yield, DB believes excess cash
will continue to be returned to shareholders through higher dividend payouts, reaching
65-70%, or a 6-7% dividend yield.
Further, DB said that Sinopec's planned marketing spin-off could unlock further value.
(KL)