China Petroleum & Chemical Corporation 0386.HK

[Dosser]

This company, better known as Sinopec Corp., raised its interim dividend to 0.16 RMB, compared with a special dividend of 0.07 RMB last year:

http://www.sinopec.com/listco/en/Resourc...082925.pdf

If they maintain their final dividend of 0.12 RMB, the dividend yield on the last done share price of HK$3.7 will be 9.4%, although this is subject to withholding tax. Historically the company has set its final dividend higher than its interim, so some upside looks a reasonable bet.

The shares are selling at about 25% above their price at the nadir last year, when oil prices briefly went negative, but less than 50% of the price in August 2018 when crude was last hovering around US$70 per barrel.

The recent regulatory crackdown has highlighted the risk in mainland stocks, and the negative sentiment is likely weighing on this company. However, as the company is majority owned by the government, this should limit the risk of the sudden moves seen with private companies like those in tutoring or tech. Like all oil majors, there is ESG risk and the potential for controls related to climate change.

[Dosser]

Final dividend announced was much higher than I anticipated, or even dared hope for, at 0.31 RMB. That gives a total dividend to 2021 of 0.47 RBM, or about 57.8c HK.

https://finance.yahoo.com/news/sinopec-a...00538.html

At Friday's closing price of HK $3.71, that is an eye-popping annual dividend yield of 15.58%. Price has moved up this morning, but at the last seen price of HK$3.92 at time of writing, the dividend yield would be 14.74%. The results for 2021 would have been based on an average oil price of around $70 per barrel, compared with about $110 now. Sinopec is already a big gas producer and it looks like a lot more investment is directed at increasing the gas supply.

[CY09]

Many of the Chinese Oil SOE are sporting such high dividend yield despite being in the league of exxon, shell, chevron. This is due to the world's distrust to the chinese government and allegations that the entire network of SOEs are cooking the books.

To me, the Chinese companies do seem tantalizing and I have invested in them for the 6-7% dividends in SOE banks and above 10% expected yield for the SOE oil majors

<vested in China SOEs and focusing more to them for china story than private enterprises>

[BlueKelah]

Theres a lot of uncertainty in the financial markets and OnG space as well. With Chinese SOE stocks it also depends on gov policies etc...

9/3 China Asks State-Owned Refiners To Halt Gasoline, Diesel Exports
https://oilprice.com/Energy/Energy-Gener...ports.html

29/3 China's Sinopec pauses Russia projects, Beijing wary of sanctions
https://www.reuters.com/business/energy/...022-03-25/

In general energy stocks have been unloved as investors and funds chase tech share past couple years, even now risk on sentiment is back. 

If financial statements are to be believed, there is a case to be made that Chinese OnG stock like this are deeply undervalued. Problem is investors and market could continue to chase tech and other more specuative plays.

[gzbkel]

Many of the Chinese Oil SOE are sporting such high dividend yield despite being in the league of exxon, shell, chevron. This is due to the world's distrust to the chinese government and allegations that the entire network of SOEs are cooking the books.

To me, the Chinese companies do seem tantalizing and I have invested in them for the 6-7% dividends in SOE banks and above 10% expected yield for the SOE oil majors

<vested in China SOEs and focusing more to them for china story than private enterprises>

Hi CY09

Thanks for sharing your reviews.
I looked at a few SOEs listed in Hong Kong, and I noticed that directors and CEO usually have no stake, or minuscule amount of stocks. They seem more like  temporary caretakers of the company.

I can't think of good reasons that would motivate management to cook the books, and consequences of getting discovered is grave in PRC. Seems like a high risk low return kind of thing.

Maybe I am missing something. If you have some articles about this subject (widespread book cooking in SOEs), could you share them?

[CY09]

The point is in how stats are derived at the national level. These SOEs are run by executives who have not much stake in these SOEs but have affiliations or are members of the CCP. If i were to loosely tie it to a Singapore context. It is akin to temasek companies being run by executives who are PAP members

Observers outside of China are claiming at the national level that the CCP themselves are cooking the books and that their GDP growth is untrue with many bad debts. They also point to low electricity consumption growth that does not correspond to GDP. Of course, if the GDP is "cooked" at the national level, the provincial, SOE accounts in the various industries have to be "cooked" as well to corroborate with the national level growth reports. In short, the national/provincial/SOEs have to sing the same tune and pitch that China is growing well.

Hence to keep up with the impression, SOEs earnings have to be growing well while giving out dividends to show its true. This is the conspiracy theorists out there and the fact people are not trusting China's SOE accounts resulting in such depressed valuation. China is indeed growing but not at such high numbers as claimed by CCP

Why I am invested across a few SOEs is for the dividends dished out by them as I am betting either they have to keep up with the fraudulent claims or that their P&L numbers were true after all. Its quite hard to find outside of China, large banks giving 6+% dividend, oil majors giving out 10% dividend or pharma giving 4+%. I have kept my investments to those owned at the national level and not by province governments. If the dominos are to fall, it will be the provincial companies first followed by the national level SOEs

[gzbkel]

Thanks for sharing your take.
There is lots of contradicting opinions about China, and I find it hard to differentiate between the real stuff and conspiracy theories.

My rule of thumb is that if if a company is able to pay consistent dividend over many years, it is worth a closer look, especially if there is no corresponding increase in debt or new placement of shares. Hard to fake payouts for long

[specuvestor]

The psychology of SOE "temporary caretakers" can be glimpsed from our very own China Aviation Oil case study or the recent Huarong debacle.

[Dosser]

Theres a lot of uncertainty in the financial markets and OnG space as well. With Chinese SOE stocks it also depends on gov policies etc...

9/3 China Asks State-Owned Refiners To Halt Gasoline, Diesel Exports
https://oilprice.com/Energy/Energy-Gener...ports.html

29/3 China's Sinopec pauses Russia projects, Beijing wary of sanctions
https://www.reuters.com/business/energy/...022-03-25/

In general energy stocks have been unloved as investors and funds chase tech share past couple years, even now risk on sentiment is back. 

If financial statements are to be believed, there is a case to be made that Chinese OnG stock like this are deeply undervalued. Problem is investors and market could continue to chase tech and other more specuative plays.

There is a risk of government action for all OnG stocks, not just China ones - excess profit tax on oil companies has been mooted by several politicians in the West in relation to high oil prices, there are also regulatory issues due to the environmental lobby. In China, we know that they need every barrel of oil/unit of gas they can get, and the government owns a majority stake so hopefully they won't go after their own companies in the way they went after the private tech and tutoring companies. The Chinese OnG companies have been paying dividends for a long time, adjusting the amount sensibly in relation to profits, in turn related to the price of oil.

International investors are shedding China stocks due to accounting issues, prospect of delisting in the US, concern that what happened to Russian stocks might happen to Chinese ones if they make a move the US doesn't like, and a general history of poor governance - all making for very negative sentiment. Chinese investors were burned in 2015, reinforcing a tendency to invest in property rather than stocks. However, now the Chinese property market is toast, along with most of the developers. If only a small proportion of Chinese investors start treating the stock market as a place to invest rather than as a casino then there should be a big pool of capital available.

No doubt there is considerable risk, but if the negative sentiment is overdone then the potential rewards are there also.

[BlueKelah]

Theres a lot of uncertainty in the financial markets and OnG space as well. With Chinese SOE stocks it also depends on gov policies etc...

9/3 China Asks State-Owned Refiners To Halt Gasoline, Diesel Exports
https://oilprice.com/Energy/Energy-Gener...ports.html

29/3 China's Sinopec pauses Russia projects, Beijing wary of sanctions
https://www.reuters.com/business/energy/...022-03-25/

In general energy stocks have been unloved as investors and funds chase tech share past couple years, even now risk on sentiment is back. 

If financial statements are to be believed, there is a case to be made that Chinese OnG stock like this are deeply undervalued. Problem is investors and market could continue to chase tech and other more specuative plays.

There is a risk of government action for all OnG stocks, not just China ones - excess profit tax on oil companies has been mooted by several politicians in the West in relation to high oil prices, there are also regulatory issues due to the environmental lobby. In China, we know that they need every barrel of oil/unit of gas they can get, and the government owns a majority stake so hopefully they won't go after their own companies in the way they went after the private tech and tutoring companies. The Chinese OnG companies have been paying dividends for a long time, adjusting the amount sensibly in relation to profits, in turn related to the price of oil.

International investors are shedding China stocks due to accounting issues, prospect of delisting in the US, concern that what happened to Russian stocks might happen to Chinese ones if they make a move the US doesn't like, and a general history of poor governance - all making for very negative sentiment. Chinese investors were burned in 2015, reinforcing a tendency to invest in property rather than stocks. However, now the Chinese property market is toast, along with most of the developers. If only a small proportion of Chinese investors start treating the stock market as a place to invest rather than as a casino then there should be a big pool of capital available.

No doubt there is considerable risk, but if the negative sentiment is overdone then the potential rewards are there also.

It seems chinese now disillusioned with stocks and property and crypto are now dumping their money into luxury assets like bags and watches. Think rolexes and other swiss timepieces have gone up in price in multiples, and new releases are selling like hotcakes. 

I guess its a bit like the situation in USA as well, where a big wall of money is just moving from asset class to asset class. 

However Chinese rule is something else, currently they are locking down shanghai, which does not bode well for their economy and stock markets.