The market accepts a recent acquisition of Sinopec, a state-owned oil giant, with little doubt. Sinopec Corp. recently announced that it will acquire the equity of 5 companies and the operation rights of 63 highway gas stations from the parent company Sinopec Group for a consideration of RMB 3.66 billion.
Sinopec said that it hopes to expand the scale of the industry and increase synergy through this move, and will use its own funds to make acquisitions. Yesterday, the market declined slightly in response to this news. Sinopec A shares fell 0.94% to close at 23.21 yuan; Sinopec H shares fell 1.36% to HK$11.62.
The acquisition involved five corporate assets, including 100% state-owned property rights in the Hangzhou refinery, 59.47% state-owned property rights in Yangzhou Petrochemical, 75% equity in Zhanjiang Dongxing, 100% state-owned property rights in Taizhou Petrochemical, and 100% state-owned equity in Qingjiang Petrochemical. As a result, the annual refining capacity of listed companies of Sinopec Corp. has increased by a total of 8 million tons. Its refining business will increase from 17 to 22.
Under China's current price mechanism for refined oil products, the market cannot directly see the good prospects of the oil refining industry. The phrase “more and more losses in refining†has plagued investors. However, Lehman Brothers stated yesterday that this has a positive effect on the financial impact of Sinopec in the long term.
Lehman Brothers reiterated yesterday that Sinopec is the top pick in China's oil and gas stocks due to the expected improvement in its refining business. Lehman Brothers stated that Sinopec's valuation is equivalent to 11.6 times expected 2008 P/E, which is attractive. Lehman Brothers maintains the "overweight" rating of Sinopec with a target price of HK$16.
Guotai Junan (Hong Kong) also issued a report saying that the total consideration for the acquisition is reasonable, which is beneficial to the future business, but the minor acquisition of assets will have a slight impact. Due to fluctuations in international oil prices, price control of refined oil products, and uncertainty in the reform process, it will be given. Its target price is HK$13.4. The bank pointed out that the price mechanism and competitive advantage of refined oil products still make Sinopec profitable. Reducing the cost, increasing efficiency, expanding sales, and revaluation of the renminbi can increase pressure to withstand rising oil prices and reduce uncertainty in performance.
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