9M16 EPS of RMB0.25, up 11% yoy; maintaining Buy with TP of HKD7.31/shSinopec reported 3Q16 NP of RMB10bn or RMB0.08/sh, up 517% YoY, butdown 23% QoQ. Compared with its 2Q results, all three segments exceptrefining saw an improvement. Lower profits from refining were mainly due tothe reversal of the 2Q inventory gains. Sinopec continues to be a cash cow,increasing its 3Q FCF to RMB44bn vs. RMB34bn in 3Q. Capex for Sinopeccontinues to be slow, achieving just 25% of its FY target of RMB100bn by9M16 （34% for 9M15.Upstream capex was weak, achieving just 19% of itsFY16 target reflected in its 14% YoY decline in crude production for 9M16.
　　With upside implied by our price target, we rate the shares Buy.
　　3Q16 results summary by segment
　　Refining: Segment profit reached RMB9.8bn, down 49% QoQ vs. a loss for thesame time last year. The drop in profits QoQ was due to lower GRM （USD1-2/bbl by our estimates） and the loss of inventory gains from 2Q. Refiningthroughput was flat YoY at 59.4mt and improved by 1% QoQ mainly due tomore maintenance time of teapots in 3Q. Diesel production was the strongestin 3Q all year round, reaching 17.2mt, up 4% QoQ, but still down 1.7% YoY.
　　Gasoline was flat QoQ at 14.1mt and up 1.7% YoY. 9M16 gasoline grew 3%YoY, while diesel fell 6% YoY. We expect the refining segment to turnaround in4Q, with: 1） potential for inventory gains, 2） recovery in crack spreads forgasoline and diesel in October and 3） increased demand for diesel in 4Q due tocold weather and the implementation of the transportation overloading law.
　　E&P: Segment profit reached -RMB8.5bn, up RMB1bn QoQ versus -RMB1.6bnin 3Q15. The realized oil and gas price was flat QoQ at USD37.9/bbl so theimprovement in earnings was due to further cost cuts. 3Q crude productionreached 75mmbbl, down 15% YoY and up 0.6% QoQ. Domestic crudeproduction continues to slow, down 16% YoY in 3Q. 3Q16 gas volume wassoft at -5% QoQ and YoY, with gas prices also declining by 3% QoQ and 20%YoY, reflecting the generally weak gas demand in 3Q across China.
　　Marketing: Segment profit reached RMB8.5bn, up 5% QoQ and 35% YoY.
　　Domestic sales of refined products was flat QoQ, but up 0.7% YoY, so higherprofitability was due to the higher secured mark-up, likely as a result ofincreased procurement from lower cost teapots. Non-fuel sales slowed to just8.4bn, down 12% QoQ, but up 34% YoY.
　　Chemicals: Segment profit reached RMB5.8bn, up 13% QoQ and 19% YoYmainly due to higher spreads. Ethylene and synthetic fiber chains sawproduction declines of 0.8-9% QoQ and 6-10% YoY. Synthetic resins rose 3.5%QoQ and flat YoY. Synthetic rubber rose 1% QoQ and -3% YoY.
　　Valuation & Risks
　　We set our TP using sum-of-the parts, valuing the upstream E&P business onDCF （8.4% WACC, 2% Tg） and the others on P/B vs. ROE, applying 1.1x, 1.7x,and 1.8x target 16E P/B on ROEs of 9.4%, 14.4%, and 15.0% in refining,chemical, and marketing segments, respectively. Key risks: Failure to fully passthrough refining feedstock cost, which may dampen gross margins in refiningsegment if oil prices move up, and changes to O&G reform.