The Analysis On Investment Value For China Petroleum And Chemical Co.

With the increasingly perfect of the capital market in China, the investment in securities is becoming reasonable. The idea of investment value analysis to public company has been emphasis by investor more and more. By integrating the method of investment value analysis we can draw the conclusion that it is mature and trustable ways to analyze the company value. We adopt financial analysis, PE analysis, risk & earning analysis to research the information completely, and make a forecast to the development of Sinopec. We make a reasonably suggestion to the investors at last.1. General situation analysis1.1 Sinopec is company controlled by country and authorized investment organizations , and it mainly deal in reconnaissance and exploitation of petroleum and natural gas, oil refining, chemical production, petroleum and petrifaction marketing, imports and exports, and other concerned operation. Sinopec's asset and market spread on east, north, and middle part of our country. Its registration asset is 1049.12 billion RMB. Sinopec is powerful strength, which owns 81 direct subsidiary, and list in Hong Kong, London, and New York.1.2 The governance structure of Sinopec is perfect. It give the senior managers the stock appreciation rights (SARs) as part of salary, which inspirits the managers. The industry link of Sinopec is very complete. It is divided in four enterprises, including oil field reconnaissance and exploitation, oil refining, chemical production and marketing.1.3 Sinopec was ranked 23rd in top 500 company by American Rich magazine. There is only one main matched emulant in China, which is China national petroleum company.2. Financial analysisBy analyzing three financial tables, we can make the conclusion that the Sinopec asset status is in order, scale is extending, operation is developing and owner rights and interests is rising stabilized and rapidly. Sinopec's net profit and Undistributed profit both show increasing trend; the increasing speed of main operation income is slower than it's speed of cost recently, which lead to decrease of profit 2005. The main reason of decrease is oil price rising in international market and final oil product price control. The state compensated 94 billion RMB to Sinopec, which shows us it is important energy department and supported by financial policy like a state-owned enterprise. The cash flow in and out kept similar movement and increased in-phase since 2002. The net cash flow of operation is positive and high quality. The cash-flow-in in investment is less than cash-flow-out, which attribute to long period and slow effect of investment in the petrifaction industry. Further more, the high investment cash flow indicate that the company is extending scale gradually.By analyzing ratio index, we can draw the conclusion that Sinopec has reasonable structure of asset, influent cash flow, high interests multiple. The short-time repayment capacity is creditable. The operation capacity of company keeps excellent and goes better and better. The index of profit ratio, net asset yield ratio, general asset reward ratio is very good, which shows the strength profit capacity.By integrated financial analysis, I think that Sinopec is competed with high development and perfect operation. The main problem is the press that international oil price keep rising. The Sinopec will turn the situation of loss profit owing to policy control if the new final oil pricing system starts.3. PE evaluation3.1 The use of PE modelEarning per share uses the date of whole industry last year in the pricing system of market. PE is limited in especial industry. In civil stock market, there is no integrated huge company except Sinopec. Therefore, the PE should be determined through Hong Kong and oversea stock market. Analyzing the PE, earning per share and their industry mean level , I think the price of H share should be 6.6-7.8 if the PE is 12, which is match the close quotation (5.86) of Sinopec in 7th Mar 2007. In A share market , the price of Sinopec should be 9-11 if the PE is 20. It is a little higher than close quotation (8.90) in 7th Mar 2007.3.2 The forecasting of earning per shareThere is several important factors considered when forecast earning per share. First, the global petroleum and chemical share price keep decreasing since January 2007. Second, there is 700-1000 rising range of final oil price. The twice rising price of final oil product reduces the burden of refining oil industry. Third, Sinopec has increase crude oil resource and gets more power to defend risk of oil price change.3.3 The different price between H share and A share marketSinopec close quotation is 8.90 in A share market 7th Mar 2007, and 5.86 in H share market at the same time. The difference between two markets is huge. The main reason of this difference come from the anticipation of investors. In civil market, Sinopec is the best, high monopolized and rare with the deeply government background. The anticipation of investor in A share market is surely high. On the other side, In Hong Kong market, Sinopec is one of many petroleum and chemical stocks, which is not rare. Further more, the Hong Kong market and the other international stock market are more mature than civil, which own more strictly evaluation and risk control progress. That is why the evaluation is different.4. Risk and earning analysisThrough excel software, I compare Sinopec listed data with A share market's, and draw the conclusion that the beta value of Sinopec is 0.968, which means the risk of Sinopec stock is lower than A share index. According to the CAPM model, the earning anticipation is 9.89% in theory. Because of low imperfect open and transparent system of information, illogical investor structure and bad share right structure of listed company, the conclusion of CAPM is just meaningful in theory and as a reference for investors.Besides of CAPM calculation, there is other important factors should be focused, including profit decrease by increase in value of RMB, international crude oil price change, oil production and resource reduction, defense capacity to oil price of refining factory reducing and the strict of the political special earning fund.5.Development forecastingOil and chemical industry is mainstay in economy strategically, and It is highly supported by industry polity. Sinopec has powerful strength and would keep steadily increasing in future.All in all, I draw the conclusion that Sinopec stock is worth of investment. As far as short and middle term investors, I suggest they look on because the price of Sinopec has increased quickly and near the actual value. If there is a opportunity that the price return, the stock can be bought. As far as long term investors, the Sinopec can be bought and held because it is low risk, steady yield, good performance and development.