4Q earnings up 65%——97% YoY
　　The company preannounced 2016 NPAT may have increased78——88% YoY to Rmb5.78bn——6.1bn （or Rmb0.53——0.57/sh），implying a 4Q16 NPAT of Rmb1.65bn——1.97bn （orRmb0.15——0.18/sh）， up 65——97% YoY and 60——91% QoQ.
　　Trends to watch
　　4Q16 earnings beat expectation. The surprise in 4Q mainlycame from the widening price spread of chemical products andinventory gain. The price spread of ethylene derivatives andnaphtha widened >20% QoQ. Chemical gross profit may hit anew high in the year.
　　R&C industry may continue to trend up. We expect grossrefining margin will stay at the current level. Chemical grossprofit may continue to increase in 2017——2018. The overhaulpeak in 2Q17 and large-scale restocking demand may push upchemical product price to hit a new high.
　　Major overhaul this year may lead to lower output.
　　According to ICIS, the company plans to carry out a 45-dayoverhaul to refining, ethylene and polyolefin devices this yearfrom late March. Device overhaul is expected to impact crudeprocessing volume and ethylene output by 1mt and 60,000t in2017, both down ——7% YoY. Given the lower output and lastyear's >Rmb500mn risk reserve provision, the earningsperformance this year might be weaker than peers.
　　Valuation and recommendation
　　Lift 2016/17e EPS forecast by 15%/12% to
　　Rmb0.55/0.48 and introduce 2018e EPS forecast ofRmb0.51. Maintain TP of SPC-A at Rmb6.70 （14x 2017eP/E）， and lift TP of SPC-H by 21% to HK$5.2 （10x 2017eP/E）。 Maintain HOLD for SPC-A/H.
　　Risks
　　Oil price surges; prices restriction on refined oil products;chemical gross profit declines; large capex expansion;environmental protection policy restricts production.