China Stock Roundup: Sinopec, PetroChina Earnings Disappoint - Analyst Blog

Stocks had a relatively better run during a holiday shortened week. The upward movement was primarily a result of expectations that the government would undertake additional measures to boost growth. A marginal improvement in official PMI numbers added to optimism.

Monday was the only day when all indices dropped as fears surrounding new share sales returned to haunt investors.  Results from oil majors China Petroleum and Chemical Corp. SNP and PetroChina Co. Ltd. PTR were disappointing.

Last Week's Developments

Stocks plunged on Friday after China's largest producer of alcoholic beverages, Kweichow Moutai Co., posted disappointing results. Net income growth declined to 3% in the first quarter compared to 21% in the same period last year. Consequently, the company's stock lost 6.3%. Continuing apprehension that new share sales will lure away funds from existing shares added to the gloom.

The CSI 300 declined 1% while the Hang Seng China Enterprises Index lost 1.5%. The Bloomberg China-US 55 Index moved down 1.3%.

The Shanghai Composite Index declined by 1% and lost 2.9% over the week. This is the highest weekly loss in three months, due to two reasons. Firstly, a decline in the HSBC Flash PMI below 50 indicated a contraction in manufacturing. Additionally, the China Securities Regulatory Commission posted several IPO prospectuses on its website, triggering speculation of resumption of new share sales.

Markets and the Economy This Week

Markets continued to take losses on Monday with the benchmark index incurring its largest daily loss since March 10. The specter of new share sales continued to haunt the markets. Meanwhile, China's largest life insurance company China Life Insurance Co.'s profits declined.

These factors ensured that the Shanghai Composite Index lost 1.6%, declining for the fourth consecutive day. The CSI 300 moved down 1.5% and the Hang Seng China Enterprises Index lost 0.2%.

The Shanghai Composite Index gained 0.8% on Tuesday after falling below 2,000 at one point. Stocks rebounded following indications that the government will take additional steps to bolster economic growth. A statement released by the government quoted Premier Li Keqiang saying that China was evaluating an economic belt plan surrounding the Yangtze river. The plan aims to link different geographic areas to boost consumption and stabilize growth. 

Consumer discretionary stocks accrued maximum gains. The CSI 300 moved up 1.1% and the Hang Seng China Enterprises Index rose 1.2%. The Bloomberg China-US 55 Index increased 1.8%.

Chinese stocks moved up marginally on Wednesday. This was primarily a result of advancers outnumbering decliners following the release of a large number of first quarter earnings reports. The Shanghai Composite Index gained 0.3% while the CSI 300 closed flat. The Shanghai Composite lost 0.3% during the month of April while the CSI moved up 0.6%.

Meanwhile, the Hang Seng lost 1.4% after Tencent Holdings Ltd moved downward and investors booked profits. These factors combined to completely erode gains made by several stocks late Tuesday. The Hang Seng China Enterprises Index lost 1%. The Hang Seng lost 0.1% over the month of April while the Hang Seng China Enterprises Index moved down 2.9%.

As stated earlier, Chinese markets, including Hong Kong, were closed for the day. The highlight for Thursday was the release of official Purchasing Managers' Index numbers. The index moved up to 50.4 from the March figure of 50.3. Several economists were of the view that this suggests that the country's manufacturing sector may have improved slightly. A figure above 50 indicates that expansion has occurred.  

Stocks in the News

China Petroleum and Chemical Corporation, also known as Sinopec, reported first quarter 2014 net income of 14.12 billion yuan (US$2.26 billion), down 15.3% from the prior-year quarter. Earnings per share of 0.120 yuan ($1.92 per ADS) fell 18.3% year over year. This was due mainly to lower crude prices and higher exploration costs. Revenues in the first quarter fell 7.8% to 641.07 billion yuan (US$104.75 billion).

During the quarter ended Mar 31, 2014, Sinopec's crude oil production grew 8.8% year over year to 89.4 million barrels, while natural gas volumes expanded 8.7% to 177.4 billion cubic feet. Domestic crude oil production increased 0.5% year over year to 76.6 million barrels, while overseas volumes increased 114.6% year over year to 12.8 million barrels.

PetroChina Co. Ltd. announced first-quarter 2014 earnings of RMB 33.0 billion or RMB 0.19 per diluted share, compared with RMB 36.0 billion or RMB 0.20 per diluted share a year ago. Earnings per ADR came in at $3.11 (exchange rate: US$1.00 = RMB 6.1, 1 ADR = 100 shares).

Moreover, PetroChina's total revenue for the quarter decreased 2.1% from the year-earlier quarter to RMB 529.0 billion.The negative comparisons can be primarily attributed to lower crude price realization, which hampered PetroChina's upstream operations, the primary business of the company. 

After the first-quarter 2014 results were announced on Apr 24, PetroChina closed at $112.45 per ADR, reflecting a marginal fall from the previous day's closing price.

Performance of Most Actively Traded US-listed Chinese Stocks

The table given below shows the price movements of 10 Chinese companies with the highest three-month average trading volume on U.S. exchanges. Price movements over the last five days and during the last six months have been included.

Next Week's Outlook:

Next week features several key economic reports. These include the HSBC Services PMI and official trade balance figures.  Concerns surrounding the effect of new IPOs have continued to exercise their influence on markets. At the same time, expectations of further economic measures have helped markets move upward. Economic data and the tenor of first earnings will possibly determine market movement going forward.

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