Haitong International: Initiate coverage on China Petroleum & Chemical Corporation (00857) and give a “Outperform” rating; target price: HKD 13.6.

Haitong International issued a research report saying that for 2026–2028, China Petroleum & Chemical Corporation Limited (00857)’s net profit attributable to the parent company is 201.62B yuan, 186.99B yuan, and 200.11B yuan, respectively. Corresponding earnings per share are 1.10 yuan, 1.02 yuan, and 1.09 yuan, respectively. Based on the valuation levels of peers, considering the company as a global leader in oil and gas, with a low-cost whole-industry-chain model and very strong earnings resilience, the report assigns the company a 2026 PE of 11X, corresponding to a target price of 13.6 Hong Kong dollars (after applying the HKD-to-RMB exchange-rate conversion). First coverage, rating: “Outperform the market.”

Haitong International’s key viewpoints are as follows:

Upstream exploration and development: Geopolitical conflicts push up oil prices, providing support for upstream profitability

The firm expects the 2026 Brent average price forecast to be 85 USD per barrel. The company’s low-cost advantage will amplify the oil-price sensitivity. Using 2022 data as a reference: when the Brent crude average price rises by 10 USD per barrel, PetroChina’s upstream segment revenue increases year over year by +8%–10% (in 2022, the year-over-year oil price increase of +40% corresponded to revenue +30%, implying an elasticity coefficient of about 0.75). If in 2026 the Brent crude average price is calculated at 85 USD per barrel (up 25% from 68 USD per barrel in 2025), the firm expects that in 2026, the company’s oil and gas revenue growth rate will reach 20%. Since the company has continuously advanced its “increase reserves and boost production” as well as “reduce costs and improve efficiency” initiatives in recent years, upstream extraction unit costs are relatively fixed, so the incremental benefit from higher oil prices will translate directly into incremental net profit. The incremental portion of oil-price increases is expected to drive upstream net profit to add 45.5–52.0 billion yuan, and together with growth in production volumes, the upstream segment’s share of net profit attributable to shareholders will increase.

Strategic transformation: Dual-engine drive from high-end chemical upgrading + large-scale new energy

In 2026, capital expenditures of 279.4 billion yuan will further increase investment in new energy, helping it become the third growth curve. In the downstream sector, the company is accelerating its transition from a scale-driven model to an efficiency-driven one. By implementing the “high-end chemical upgrading” strategy, the company continues to optimize its product mix, converting more crude oil fractions into special new materials with higher added value. Sales volumes of high-end products such as polyethylene and polypropylene in 2026 are also expected to grow. The firm expects that in 2026, the company’s refining and petrochemical as well as new materials business revenue growth will reach 15%. This growth will not only come from capacity release in the new-materials production lines, but also benefit from the cost-reduction and efficiency-enhancement effects brought by refining-and-chemicals integration. Moving the profitability focus upward in the segment can not only effectively offset risks from volatility in downstream fuel demand, but also enhance the company’s long-term earnings resilience and valuation attractiveness in the capital markets.

Industry-leading high dividends, with strong defensive characteristics

In 2025, the company’s dividend yield is 6%. Total annual cash dividends exceed 86.0 billion yuan, with a payout ratio of 55%. This is the highest level in the past five years, significantly higher than the 3%–4% average among global integrated oil companies. The company is expected to maintain a 55% payout ratio in 2026, corresponding to a 6.4% dividend yield for Hong Kong-listed shares in 2026. With a stable dividend policy and strong cash flow, it offers value for a scarce high-dividend “core holding” allocation.

Risk warning: Sharp volatility in crude oil prices; weak downstream demand; increases in raw material prices exceeding expectations.