J.P. Morgan Maintains Neutral on Sinopec A/H; Cuts FY26E Earnings to Reflect Weaker Refining Margins

Overview

This is an earnings review report by J.P. Morgan on Sinopec A/H. The core view is that following Q1 2026 results, pressures in the company's refining and chemicals segments persist and may continue through Q2-Q3 due to elevated feedstock costs, freight, insurance premiums, refined product pricing mechanisms, and low chemical spreads. Consequently, J.P. Morgan trims FY26E net profit by 5% and maintains a Neutral rating on Sinopec Corp-H and Sinopec Corp-A.

Core views

First, core refining profitability remains challenged. While the company utilized lower-cost feedstock purchased two months prior in Q1 2026, significant cost inflation is expected in Q2/Q3, with management noting that May and June OSP, freight, and insurance premiums could exceed previous levels by more than US$10/bbl. Second, LNG import forecasts have been lowered as Qatar supply disruptions led to increased spot LNG procurement, causing LNG imports to turn loss-making in Q1 2026. Third, the YoY decline in E&P profits was primarily driven by CNY appreciation against the USD, resulting in a negative FX impact of approximately Rmb0.9bn. Fourth, chemical operating rates will be dynamically adjusted, and Sinopec's FY26 ethylene output may fall short of the 15.8Mt guidance. Fifth, the report expects domestic refined product sales volumes to enter a structural decline at a CAGR of approximately 3% over the coming years due to substitution by EVs and natural gas heavy trucks.

Analysis framework

The report analyzes data from earnings calls, segmental operating metrics, oil product inventories, PE operating rates, comparisons of Q1 2026 actual operating metrics against FY26 guidance, earnings forecast adjustments, and a SOTP valuation framework. The rating conclusion incorporates near-term refining/chemical margin pressures, LNG import P&L, E&P FX impacts, uncertainties in oil product export policies, the oil price and feedstock supply environment, and valuation outcomes corresponding to A/H share target prices.

Methodology notes

• Valuation methodsSOTP

  Sum-of-the-Parts Valuation

  DCF is used for upstream businesses; 0.6x P/B for refining and chemicals; and 10x P/E for marketing. The A-share target price applies an average 45% A/H premium based on 2022-2025 data.

• Valuation methodsDCF

  Discounted Cash Flow

  The report applies DCF to Sinopec's upstream E&P business to reflect the long-term cash flow value of upstream operations.

• Relative ValuationP/B and P/E Multiples

  Book Value and Earnings Multiple Valuation

  Refining and chemicals are valued at 0.6x P/B referencing PetroChina; marketing is valued at 10x P/E referencing media-reported IPO valuation targets.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Sinopec Corp-H (0386.HK / 386 HK)

  Primary coverage target, H-shares

  Strengths

  Integrated oil & gas company with full value chain across E&P, refining, marketing, and chemicals; currently offers a relatively high projected H-share dividend yield of 5.7% for FY26E.

  Weaknesses

  Significant downstream exposure; refining and chemical margins are highly sensitive to feedstock, logistics, insurance, oil product pricing mechanisms, and chemical spreads.

  Comparison

  Refining/chemicals businesses valued at 0.6x P/B in SOTP, referencing PetroChina; H-share TP is HK$5.00.

  Risks

  Oil prices exceeding US$100/bbl triggering refining losses; Middle East conflicts causing logistics or feedstock disruptions; rising international LNG prices leading to import losses.

• Sinopec Corp-A (600028.SS / 600028 CH)

  Primary coverage target, A-shares

  Strengths

  Same underlying operating fundamentals; A-share TP derived via SOTP plus average A/H premium; FY26E dividend yield of 4.3%.

  Weaknesses

  A-share price performance has recently lagged the index, with YTD absolute return of -12.3% and relative return of -15.8%; earnings forecasts similarly trimmed due to weaker refining margins.

  Comparison

  A-share TP of Rmb6.50 applies a 45% A/H premium; FY26E P/E of approx. 16.2x vs. approx. 12.3x for H-shares.

  Risks

  Same as H-shares, additionally exposed to A/H premium volatility and A-share market style shifts.

• PetroChina

  Valuation peer reference

  Strengths

  Serves as peer benchmark for refining/chemical P/B multiples.

  Weaknesses

  Report does not elaborate on fundamental comparisons with PetroChina.

  Comparison

  Sinopec refining and chemicals valued at 0.6x P/B, stated to be consistent with PetroChina peer levels.

  Risks

  Changes in peer multiples may affect relative valuation benchmarks.

• CATL-H

  Stake reportedly sold by Sinopec Hong Kong Ltd.

  Strengths

  Reported sale could generate Rmb5.2bn cash proceeds and Rmb3.1bn other comprehensive income gain.

  Weaknesses

  Sale not discussed during earnings call; remaining stake subject to 90-day lock-up.

  Comparison

  Viewed as potential cash accretion rather than a source of core operating profit.

  Risks

  Uncertainties regarding transaction terms, accounting recognition, and price volatility of remaining stake.

Key data

• H-Share Rating & Target PriceNeutral; HK$5.00; current price HK$4.70TP horizon Dec-26; prices as of 2026-04-29.
• A-Share Rating & Target PriceNeutral; Rmb6.50; current price Rmb5.42TP horizon Dec-26; prices as of 2026-04-29.
• FY26E Net Profit AdjustmentCut by 5%; forecast at Rmb40.453bnReport states forecast is 13% below consensus.
• Adj. EPS AdjustmentFY26E reduced from Rmb0.35 to Rmb0.33; FY27E reduced from Rmb0.48 to Rmb0.45Corresponding adjustments of -5.7% and -5.2%, respectively.
• Refining Cost Inflation Guidance>US$10/bblManagement stated May/June OSP, freight, and insurance premiums could exceed US$10/bbl.
• 1H26 Net Profit ForecastRmb21bnIncludes assumptions for partial inventory gains from high oil prices in Q2.
• Q1 2026 Natural Gas Value Chain Operating ProfitRmb7.4bn; +7% y/yAccounts for 29% of Q1 2026 operating profit.
• 2026 LNG Import Profit ForecastRmb3.3bnLower than approx. Rmb4bn in 2025 due to reduced LNG import volume forecasts.
• Q1 2026 LNG Import LossRmb830mnDecline in long-term contract volumes and increase in spot procurement.
• E&P FX Impact5% CNY appreciation vs. USD caused approx. Rmb0.9bn negative earnings impactManagement attributed most of the Rmb0.6bn YoY decline in E&P segment operating profit to FX.
• Q1 2026 Refinery Throughput62Mt; 24.8% of FY26 guidanceFY26 guidance is 250Mt.
• Q1 2026 Ethylene Output3.553Mt; 22.5% of FY26 guidanceFY26 guidance is 15.8Mt; report suggests full-year output may fall short of guidance.
• Oil Product ExportsQ1 2026 exports 4.23Mt, of which 3.80Mt was jet fuelApprox. 90% was aviation fuel; remainder was gasoline and diesel.
• CATL-H Stake Sale ReportsSale of 8.5mn shares, reducing original 14.7mn stake by 58%Report notes that under reported terms, Rmb5.2bn proceeds could generate Rmb3.1bn other comprehensive income gain; not discussed during earnings call.

Impact & implications

Regarding investment implications, the report views Sinopec's near-term earnings resilience as constrained by refining and chemicals, particularly when high oil prices coincide with tight feedstock supply, rising insurance and logistics costs, and a domestic refined product pricing mechanism unable to fully pass through costs. Although high oil prices may provide inventory gains and upstream support, they are insufficient to alter the view of pressured refining/chemical margins and structural decline in domestic oil demand. Therefore, the Neutral rating is maintained, with key watchpoints shifting to feedstock supply recovery, oil price stabilization, policy support, and measures to mitigate refining losses.

Risks

• Domestic refined product price ceiling policies in China may lead to refining losses if oil prices rise above US$100/bbl.
• Prolonged Middle East conflicts or shipping disruptions may increase logistics costs or disrupt crude feedstock supply.
• Sharp increases in international natural gas or LNG prices due to geopolitical events or unexpected outages may result in significant natural gas import losses for Sinopec.
• Continued decline in domestic gasoline and diesel demand due to EVs, natural gas heavy trucks, and high oil prices, leading to rising oil product inventories.
• Chemical spreads at historical lows; insufficient cost pass-through may further pressure chemical gross margins.
• Resumption of refined product exports remains under regulatory review; policy uncertainty may affect inventory management and profit recovery paths.

What to watch

• Whether May and June OSP, freight, and insurance premiums continue to exceed US$10/bbl.
• Measures to mitigate refining losses in Q2-Q3 and whether domestic refined product pricing mechanisms provide additional support.
• Timing of feedstock supply improvements and oil price stabilization.
• Dynamic adjustments to Sinopec's ethylene, aromatics, and refinery operating rates, and whether the FY26 ethylene guidance of 15.8Mt can be achieved.
• Qatar supply disruptions, spot LNG procurement ratios, and changes in LNG import P&L.
• Whether oil product export policies resume general trade exports and utilization of annual export quotas.
• Trends in domestic gasoline/diesel inventories, jet fuel prices, sulfur, and asphalt prices.
• Final confirmation of CATL-H stake sale, cash recovery, and accounting gain recognition.