CLSA has released a research report stating that since the outbreak of the US-Iran conflict in March, the share price performance of SINOPEC CORP (00386) has lagged behind PETROCHINA (00857) and CNOOC (00883) by 29% and 18% respectively. This reflects a divergence in core profitability among the three national oil giants in an environment of rising oil prices. The firm expects this trend to continue as the announcement of Q2 2026 results approaches in August. Its order of preference for the Chinese oil majors remains PETROCHINA > CNOOC > SINOPEC. It maintains "Outperform" ratings on the H-shares of all three, with target prices of HKD 12 for PETROCHINA, HKD 32 for CNOOC, and HKD 4.9 for SINOPEC. With the average oil price from Q2 2026 to date at USD 117 per barrel (a 44% increase quarter-over-quarter), the impact on SINOPEC's downstream business could be more severe. Its Q2 refining profits will be affected by the National Development and Reform Commission's slowdown in adjusting domestic gasoline and diesel retail prices, which will pressure refining margins amid rising oil costs. Furthermore, a significant increase in Very Large Crude Carrier (VLCC) freight rates due to the closure of the Strait of Hormuz (averaging USD 7.2 per barrel of oil equivalent since March, 5.2 times higher than the 2025 average of USD 1.4) has added an extra cost burden to its crude imports alongside rising oil prices. In this context, the firm believes SINOPEC's overall Q2 2026 results could potentially shift from profit to loss (excluding inventory gains). CLSA notes this, in turn, will affect each company's dividend payouts for 2026. Benefiting from robust exploration and production (E&P) profits, PETROCHINA and CNOOC should generate stronger operating cash flow, providing greater room for increased dividend distributions. On the other hand, SINOPEC, facing challenges in its downstream operations, may experience pressure on its operating cash flow, which could affect its ability to maintain dividend payments in 2026. The report points out that SINOPEC has reduced capital expenditures by 30% over the four years from 2023 to 2026, but considering the current downstream operating environment, this may still be insufficient. Overall, the firm sees upside risks to market full-year 2026 profit forecasts for PETROCHINA and CNOOC, especially for PETROCHINA, whose Q1 2026 earnings, due to a one-month lag in realized E&P prices, have not yet reflected the positive impact of rising oil prices. It expects the upcoming Q2 2026 results (to be announced in August) to show strong sequential growth, demonstrating the company's robust earnings trajectory for the year. Conversely, the firm anticipates downside risks to SINOPEC's full-year 2026 earnings, as its challenging Q2 could impact market expectations for its 2026 profits and dividend payouts.