PREPARED BY NON-US BROKER-DEALER(S): BNP PARIBAS SECURITIES (ASIA) LTD THIS MATERIAL HAS BEEN APPROVED FOR U.S DISTRIBUTION. ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES CAN BE FOUND AT APPENDIX ON PAGE 23 A new beginning n The empire, long united, must divide The proposed restructuring of the marketing division represents a milestone in SOE reform. We see multiple benefits from unlocking value and operating improvement from new partners and focused management. n Non-fuel/CVS sales growth is key Sinopec dominates China’s CVS store count (41% market share) but only generates sales per store at 12% of China’s average CVS equivalents. We estimate that an improvement in Sinopec’s sales per store to 75% of China’s average would add HKD0.8/share to Sinopec’s valuation. n Strategic partner critical; Spin-off even better Identifying the right partner is key – we believe candidates are likely to come from the CVS sector. A better step would be for Sinopec to spin-off the marketing division, which is more tax-efficient and transparent – we estimate Sinopec’s value could rise to HKD9.2/sh in this scenario. n Raise TP to HKD8.50. BUY We raise our TP to HKD8.50, based on SoTP which more accurately reflects the prospect of Sinopec realising the value of its assets (previously we used EV/CE). Key downside risk lies in the inability to carry out this ambitious restructuring plan. Scenario analysis --- Value creation for Sinopec Source: BNP Paribas estimates 0.00.51.01.52.0Stake saleOperating improvementSpin-off(HKD/share) 24 APRIL 2014 NEW INFORMATION 23CHINA / OIL & GAS SINOPEC 386 HK BUY UNCHANGED TARGET PRICE HKD8.50 CLOSE HKD7.09 UP/DOWNSIDE +19.9% PRIOR TP HKD7.80 CHANGE IN TP +9.0% HOW WE DIFFER FROM CONSENSUS MARKET RECS TARGET PRICE (%) 9.2 POSITIVE 27 EPS 2014 (%) 0.0 NEUTRAL 6 EPS 2015 (%) 6.0 NEGATIVE 3 Yong Liang Por yongliang.por@asia.bnpparibas.com +852 28251877 Anna Yu anna.yu@asia.bnpparibas.com +852 2825 1861 Our research is available on Thomson One, Bloomberg, TheMarkets.com, Factset and on http://eqresearch.bnpparibas.com/index. Please contact your salesperson for authorisation. Please see the important notice on the back page. KEY STOCK DATA YE Dec (RMB m) 2013A 2014E 2015E 2016E Revenue 2,880,311 3,042,945 3,043,961 3,194,200 Rec. net profit 66,132 76,402 86,802 82,527 Recurring EPS (RMB) 0.57 0.66 0.74 0.71 Prior rec. EPS (RMB) 0.57 0.66 0.74 0.71 Chg. In EPS est. (%) 0.0 0.0 0.0 0.0 EPS growth (%) 0.2 15.5 13.6 (4.9) Recurring P/E (x) 10.1 8.7 7.7 8.1 Dividend yield (%) 4.2 4.0 4.6 4.3 EV/EBITDA (x) 5.4 5.2 4.8 5.0 Price/book (x) 1.2 1.1 1.0 0.9 Net debt/Equity (%) 47.4 48.4 46.2 45.6 ROE (%) 12.2 12.9 13.4 11.7 Share price performance 1 Month 3 Month 12 Month Absolute (%) 6.9 12.9 11.6 Relative to country (%) 4.4 15.3 10.2 Next results April 2014 Mkt cap (USD m) 106,580 3m avg daily turnover (USD m) 119.1 Free float (%) 24 Major shareholder Sinopec Group (76%) 12m high/low (HKD) 7.34/5.08 3m historic vol. (%) 33.0 ADR ticker SNP US ADR closing price (USD; 22 Apr 2014) 92.78 Issued shares (m) 116,565 Sources: Bloomberg consensus; BNP Paribas estimates (19)(9)1114.475.476.477.47Apr-13Jul-13Oct-13Jan-14Apr-14(%)(HKD)SinopecRel to MSCI China Sinopec 386 HK Yong Liang Por 2 BNP PARIBAS 24 APRIL 2014 Investment thesis Sinopec is our top BUY in the China oil sector as it is making the most progress at restructuring via the proposed sale of a 30% stake in its marketing division, which we believe could unlock significant value and improve operations. Sinopec is also a key beneficiary of new pricing guidelines for clean fuels that we estimate could boost the company’s refining margins by USD1.2/b by 2015 from 2013 levels. Our TP of HKD8.5 is based on SoTP. We find Sinopec’s valuation attractive at 2014E P/BV of 1.1x while offering ROE of 13% and dividend yield of 4%. Catalyst Against a weak macro backdrop, we believe that restructuring of the marketing division is key. We expect more details in June and a potential deal by the end of 2014 to be positive catalysts. Risks to our call The key downside risk is the inability to find the right strategic partner or failure to command a high multiple (mid-teen P/E) for the 30% stake sale. Company background Key assumptions Sinopec Corp is the second largest integrated oil company in China. It has significant E&P production (1.3m boe/d) and dominates downstream segments such as refining (5 mb/d), chemical (9.4mn tpa ethylene) and marketing (30,000 stations and 60% market share). Sinopec Corp was listed on the Hong Kong Stock Exchange in 2000 and is 76% owned by parent company, Sinopec Group. 2012 2013 2014E 2015E 2016E Brent crude (USD/bbl) 111.7 108.7 107.0 104.0 100.0 Realized price (USD/bbl) 99.5 97.9 95.2 91.5 91.5 Total production (m boe) 428 445 489 510 505 Refining OPM (USD/bbl) (1.3) 1