好

China announced another 4% cut in gasoline and diesel prices
last night, under the new pricing policy.

● We have reduced our earnings estimates for Sinopec by 29% for
2009 and 23% for 2010 to reflect lower margins on decontrolled
products and lower marketing profits (in line with the new policy).
PetroChina’s EPS estimates have been reduced 7% and 5% for
2009 and 2010, respectively.

● The price cut is earlier than expected. With this, January refining
margins for Sinopec is closer to US$3.0/bbl, just below its total
cost. We forecast US$5.7/bbl. In the absence of another price cut
in February, margins should improve, in our view.

● With the new pricing policy out of the way, we believe consensus
estimates for Sinopec and PetroChina are likely to move down for
2009. PetroChina will see significant drop in 1Q09E EPS over
4Q08. Sinopec should improve over 4Q08, but consensus has
downside. ROEs for both are heading to cyclical lows.

● P/B multiples are higher than history (outside of 2006/07). ROE
compression should result in derating. Sell PetroChina, Sinopec.
Figure 1: Sinopec and PetroChina – earnings and key assumption