Hong Kong-traded shares in China Petroleum and Chemical Corp (Sinopec), Asia's largest refiner, recorded a sharp fluctuation yesterday, as the stock fell on lower-than-expected annual results and later soared on bargain hunting.

The Beijing-based company fell as much as 4.8 percent yesterday to HK$7.11, making it the worst-performing blue-chip stock in late morning, and eventually ending the day at HK$7.60, up by 2.01 percent. Turnover was HK$213 million.

Investment banks maintain their "buy" rating for Sinopec shares despite its worse-than-expected profits last year. Bloomberg

The country's top refiner announced its 2007 results Sunday night, and its Hong Kong-listed shares opened lower yesterday morning, as investors tried to shed off the shares on fears of further losses.

Having called the refiner's performance disappointing, global investment banks said in their reports that the refiner's result and operating profits were considerably lower than their forecasts. And the weak performance in its exploration and production division last year was alarming.

For the full year, the exploration and production division's performance was very poor, despite an 11 percent increase in benchmark crude oil prices, Citigroup said.

"Sinopec's result was 7.1 percent below our 60.9 billion yuan forecast and 8.2 percent lower than the market average of 61.6 billion yuan," Citigroup said in a report yesterday.

The bank said the company's exploration and production division's operating profits for the last quarter of 2007 disappointed significantly with a 23 percent quarter-on-quarter decline, despite rising benchmark oil prices.

The division's revenue also seems lower than it should be, it said.

"We continue to think there is downside risk to both our and consensus 2008-09 earnings estimates for Sinopec, due to the possibility of higher-than-expected oil price forecasts and 2008 refining throughput," said Goldman Sachs in a research report yesterday.

Despite the downside risk forecast, banks and analysts maintain their optimistic outlooks toward Sinopec's H-shares, citing the firm's long-term growth potential.

"The company's performance was poor in 2007 and in the first quarter this year, however, it is due to the central government's policy on curbing refined product prices in a bid to limit the inflation," said Anna Yu, an energy analyst at Taifook Securities.

The central government caps the price of fuels to limit their impact on inflation, which reached 8.7 percent in February, the fastest inflation increase in 11 years.

The regulators increased their refined-product prices by 10 percent last November, compared with the 57 percent jump in oil prices in the global market.

Sinopec received 4.9 billion yuan worth of subsidies from the government as compensation last year.

"The company's refining division continued to lose money in the first quarter, but oil and related product prices are expected to be adjusted soon, and Sinopec still has a strong growth outlook for the long run," Yu said.

Both Citigroup and UBS maintain their "buy" ratings for Sinopec, saying the present situation will improve later this year.

(HK Edition 04/08/2008 page3)