Results summary
Sinopec posted 3Q17 NP of RMB11.4bn / EPS of RMB0.09, +13% YoY / 7%QoQ. 9M17 results tracks 77% of DBe FY17E. 3Q17 results were in line with ourexpectations and our FY17 estimate, driven by better-than-expected performancefrom E&P segment （lower cost）， Refining （higher GRM） and Chemical （highervolumes） partially offset by lower than expected marketing （non-fuel sales down8% QoQ）。 Capital expenditure through 9M17 （RMB29.1bn, 26% of FY17E budgetlaid out in the beginning of the year） came in below our expectation owing tooptimization of projects. Subsequently, SNP has revised downwards its FY17Ecapex budget to RMB98.5bn （down 11% vs previous estimate）。 With strongbalance sheet and stable price environment, we expect SNP to focus on reserveaddition and development in FY18e. Reiterate Buy
3Q17 Results summary by segment
E&P: Segment loss narrowed to RMB8.0bn vs RMB12.5bn in 2Q17,mainly due to ~RMB4.0bn cost savings. Crude oil ASP averaged USD45.7/bbl in 3Q17, was marginally down due to lower realization vs Brent （$52.2/bbl） while crude production remained largely flat. However, gas volumerose by 4% QoQ and 32% YoY, with realized gas prices too down 4%QoQ. After under-spending through 9M17, Sinopec revised its E&P FY17Ecapex budget to RMB42.7bn, down 15% from the previous estimate,implying RMB31.8bn spend estimate for 4Q17.
Refining: Segment profit rose to RMB14.6bn, +14% QoQ / +48% YoY,due to three key reasons: 1） higher throughput and 2） high valueaddedproduct yield with diesel-to-gasoline production ratio at 1.16 and3） low feedstock cost due to optimized crude sourcing and improvedprocurement strategy. FY17e capex for the segment too was lowered toRMB21.3bn, down 7% from the previous estimate.
Marketing: Segment profit decreased to RMB6.9bn, down -7% QoQand -19% YoY. While the refined products sales increased modestly by1% QoQ but up 6%YoY, profitability declined due to competitive marketconditions. Underperformance in marketing likely meant that the pricewar is yet to finish. Unexpectedly, non-fuel sales' margin declined by8% QoQ. This, we suspect, could be the main reason behind marketingsegment's underperformance. SNP retains the capex budget for thesegment at RMB18bn.
Chemicals: Segment profit reached RMB4.6bn, +25% QoQ and -21% YoYmainly due to higher production volume. The segment's EBIT/ton was atRMB1,562/t up 14% QoQ. Production of ethylene went up by 10% QoQand 11% YoY while Synthetic resins' output were up 7% QoQ and +5%YoY. SNP lowered chemicals' FY174E capex by 17% to RMB12.5bn.