Sinopec: Well Placed to Increase Profits

| About: Sinopec Shanghai (SHI)

Sinopec (NYSE:SHI) has cut back on costs and continued to expand during difficult economic conditions, the company is now well placed to increase profits over the next 12 months.

Curently trading at $40.89 per share, the Ebeling Heffenan short term target is $49 and in 2010 we expect the company to each new highs of $90 plus.

Sinopec Shanghai Petrochemical Company Limited is a China-based petrochemical company. The Company’s integrated petrochemical complex processes crude oil into a range of products in four product areas: synthetic fibers, resins and plastics, intermediate petrochemicals, and petroleum products. It is a producer of synthetic fibers and resins, and plastic products. During the year ended December 31, 2008, synthetic fibers, resins and plastics, intermediate petrochemicals, petroleum products and all other product categories accounted for 6.17%, 25.03%, 17.31%, 46.44% and 5.05% of total net sales, respectively. The synthetic fibers segment produces primarily polyester and acrylic fibers mainly used in the textile and apparel industries. The resins and plastics segment produces primarily polyester chips, low density polyethylene resins and films, polypropylene resins and polyvinyl acetate granules. The intermediate petrochemicals segment primarily produces ethylene and benzene.

SHI Chart

SHI Chart

Key stats and ratios, Q2 (Jun ‘09) 2008

  • Net profit margin 5.47% -10.45%
  • Operating margin 7.73% -13.18%
  • EBITD margin – -10.44%
  • Return on average assets 7.55% -21.61%
  • Return on average equity 14.26% -36.54%
  • Employees 17,267

State-owned Sinopec Corp. said Friday it has signed a 20-year contract with Exxon Mobil Corp. (NYSE:XOM) to buy gas from Papua New Guinea, in the latest of a flurry of foreign deals to secure fuel for China’s booming economy.

The liquefied natural gas will come from a project being developed by Exxon Mobil and other investors in Papua New Guinea’s central highlands. Sinopec gave no financial details.

Sinopec, also known as China Petroleum & Chemical Corp., is China’s second-biggest oil and gas company and Asia’s biggest oil refiner by volume. Its shares are traded in New York, London, Hong Kong and Shanghai.

The contract calls for Sinopec to buy some 2 million tons of gas per year, which it will import through a terminal in China’s eastern port of Qingdao.

The supplies “will play a positive role in meeting the local demand, optimizing the energy mix and improving the local environment,” said Sinopec’s senior vice president, Wang Zhigang, in a statement.

Other participants in the Papua New Guinea project are Australia’s Oil Search Ltd., Japan’s Nippon Oil Corp., Mineral Resources Development Co. and Petromin PNG Holdings Ltd., according to Sinopec.

Chinese energy companies have signed a multibillion-dollar string of deals to import oil and gas from the Gulf, Africa, Central Asia and elsewhere.

In August, Sinopec rival PetroChina Ltd. reached a $41 billion deal to buy natural gas from Australia’s Gorgon field.

Disclosure: Long SHI