NDRC raises gasoline/diesel prices by Rmb165/160 per ton
NDRC has announced it will lift refined product prices by RMB165/ton &RMB160/ton for gasoline & diesel, effective from April 27 onwards. Thisrepresents a 3% uplift to ex-refinery prices. Also, it is the first adjustment sincethe refined product floor price was launched in Jan 2016. Based on ouranalysis, stripping out refined product VAT and consumption tax, refiners willlift refined product prices by US$2.6/bbl & US$2.8/bbl for gasoline & diesel,respectively, or +4.7%. In our opinion, this is in line with NDRC policy that: 1)refined product prices should change every 10 working days if the crude oilbasket price changes by +/-RMB50/ton and 2) refiners are allowed to earn“appropriate” refining margins when the oil price is below US$80/bbl.
　　Strong refining margins continue in China
Our China GRM proxy model shows that China spot GRM should improve fromUS$7.8/bbl to US$9.4/bbl. Also, year-to-date GRM is tracking at US$13.8/bbl.
　　We believe such strong GRM was due to: 1) implementation of refined productfloor price; 2) fuel standard upgrades, and 3) oil price plunge. We believe thesector catalyst would be on arrangement details of the extra-refining profitsunder refined product floor price. Conversely, China GRM is at premium to SGComplex GRM by +US$4.2/bbl. We believe this may encourage teapot refinersto further lift their run-rates, and become threats to nationwide refiners.
　　We expect SPC to further enjoy benefits from robust refining margins
We reiterate our Buy rating on SPC-H (338 HK), on 1) pure exposure in refiningand chemicals; 2) strong refining margins with potential further improvement;3) the chemical up-cycle. SPC-H currently trades at 1.6x 16E P/B, and our DCFderivedtarget price of HK$5.0 implies a 2.0x P/B. See SPC-H initiation report: Beneficiary of low oil prices for details.