Why did third-quarter profit exceed expectations by so much?

  • Sinopec’s net profit in the third quarter of 2026 was 13.6 billion yuan, up 64% year on year and above Bernstein’s earlier forecast of 5.5 billion yuan. Earnings before interest and tax were 21.3 billion yuan, up 60% year on year and also above the firm’s forecast of 9.6 billion yuan.
  • Refining was the main driver: segment earnings before interest and tax reached 11.7 billion yuan, compared with 2.5 billion yuan a year earlier and Bernstein’s previous forecast of 2.7 billion yuan. Management attributed the improvement to wider refining margins, inventory gains from rising oil prices, and increased production of higher-value products such as jet fuel and naphtha.
  • The upstream business provided relatively stable profit: third-quarter oil and gas production was approximately 133 million barrels of oil equivalent, broadly unchanged. The realized crude oil price rose 23% year on year, driving upstream earnings before interest and tax up 13% to 9.4 billion yuan.

What happened to operating volumes behind the profit growth?

  • Third-quarter refinery throughput fell 18% year on year to 54.2 million tonnes, while refined fuel sales fell 14% to 50.9 million tonnes. Management said domestic refined fuel demand fell approximately 8.6% year on year in the first three quarters of 2026, owing to higher oil prices and accelerating substitution by new energy sources.
  • Profit in the marketing business was squeezed: despite a broadly stable market share, third-quarter marketing segment earnings before interest and tax fell 84% year on year to 300 million yuan.
  • The chemicals business also faced oversupply and weak end demand. Its third-quarter loss before interest and tax narrowed to 1.9 billion yuan from 3.2 billion yuan a year earlier, but chemical product output fell 21% year on year; ethylene output fell 19% year on year in the first three quarters.

What changed with strong cash flow?

  • Third-quarter operating cash flow was 138.5 billion yuan, compared with 53.8 billion yuan a year earlier. Capital expenditure was 28.1 billion yuan, broadly unchanged year on year, so free cash flow reached 110.5 billion yuan, compared with 25.9 billion yuan a year earlier.
  • At the end of the third quarter, the company held approximately 247 billion yuan in cash and cash equivalents, but net debt rose to approximately 215 billion yuan and the net gearing ratio was 18.4%, up from 15.5% at the end of the first half.

Why does Bernstein remain cautious?

  • Bernstein believes the earnings beat may support the share price in the short term, but the quarter’s earnings were supported to a large extent by inventory gains and favorable refining conditions. These factors may be difficult to sustain if oil prices return to normal. The firm expects downstream profits to remain highly sensitive to product margins and inventory changes.
  • Bernstein maintained its Underperform rating, with target prices of HK$4.20 per H share and 4.20 yuan per A share. Its valuation model assumes an average Brent crude price of US$90 per barrel in 2026, US$78 in 2027 and US$75 over the long term.