Restructuring of marketing segment caused a re-rating of Sinopec (386) – BUY
Chairman of Sinopec (386, $7.06) recently disclosed that the company plans to sell up to 30% stake in its marketing
& distribution segment and would consider giving up controlling stake in the long run. Management said capital is not
what the company is looking for, and potential buyers could include international and private capitals as well as
internet companies. We believe the proposed restructuring will enable Sinopec to unlock the hidden value of its
distribution network, leading to a positive re-rating on its valuation. Revenue, operating profit and operating margin
for the marketing & distribution segment amounted to RMB1,103bn, RMB26.7bn and 2.4% in the first nine months of
2013 and RMB1,462bn, RMB42.6bn and 2.9% in 2012, respectively.
Sinopec’s share price hit 52-week high last Friday and outperformed Hang Seng Index by 15.4%, 12.0% and 16.6%
over the past 1-month, 3-month and 6-month respectively. Current price of H-share is 4% higher than A-share versus
10% by end-2013. The company will release financial results for 2013 on March 21. According to market consensus,
the counter is presently trading at 2014 P/B of 1.03x, 2014 dividend yield of 4.4%, 2014 PER of 8.5x with EPS
growth of 9%. Analysts’ consensus price target is $7.58. We recommend a speculative BUY on Sinopec with price
target of $8.0.