1H17 in line; dividends softer than expectedSNP reported 1H17 NP of RMB28bn or EPS of RMB0.23 （40% yoy/4% hoh）， inline with our estimate of RMB0.23/share. Excluding the RMB3.9b inimpairment charge （primarily to E&P）， core earnings would have improved by60% yoy, led by higher oil. Its core downstream segments of refining andchemicals saw 29% yoy growth, excluding the 1Q16 extra profit in refining.
　　SNP also declared an interim dividend of RMB12b or RMB0.10/share, （+26.6%yoy）。 However, payout ratio declined to 43.4% from 48% in 1H16, representing1.7% yield. We suspect the lower ratio was due to the fact that SNP only spent14% of its full yr capex target in 1H. We expect more in sight; reite rating Buy.
　　Segment Results Summary
E&P OP improved yoy to -RMB18bn from -RMB22b in 1H16, mainly due tohigher oil prices. However, all-in-all cost remained elevated at USD63/bbl,although the SNP is taking steps to rectify this by taking a RMB3.4bimpairment charge. All-in-all cost, excluding impairment charges, was up15% yoy to US$53/bbl on higher DDA at +15% yoy. Crude oil productionwent down 5.3% yoy to 146mmbbl, compensated by 16.3% growth innatural gas production to 452bcf
　　Refining profit of RMB29.3b was largely in line with our estimate. Whilerefined products ASPs increased by 20% yoy in 1H17, the segment’smargin was dragged down by higher opex. Cash operating cost rose by2.5% yoy, mainly due to the increased operating cost associated with theupgrade in quality of oil products. Refining GRM was down 8% yoy to$9.4/bbl.
　　Marketing profit increased 5% yoy to RMB16.6bn. Non-fuel sales grew+67% hoh/+50% yoy to RMB27.8bn. Gasoline/kerosene sales volume was+2.7%/4.7% yoy, while diesel sales were marginally lower -0.3% yoy.
　　Although product ASP went up, marketing segment’s operating marginlowered to 2.7%, down from 3.1% in 1H16, due to higher raw materialcost and competition squeezing spreads. Retail gasoline and dieselspreads were lowered by RMB82/t and RMB71/t hoh and RMB48/t andRMB54/t yoy, respectively.
　　Chemicals profit surged 25.6% yoy/11% hoh to RMB12bn on higherproduction 15.3% yoy and 21.5% higher ASPs. Ethylene EBIT/ton was up23% yoy/11% hoh at RMB2,167/ton.