Following an assessment of energy prices and earnings forecasts, Morningstar has increased its fair value estimate for SINOPEC CORP (00386) H-shares by 3.6% from HK$5.50 to HK$5.70, influenced by the appreciation of the renminbi. The valuation for the A-shares remains unchanged at RMB 5.00. The report noted that SINOPEC's 2025 net profit declined by 34% to RMB 32.5 billion due to lower oil prices, weak downstream demand, and impairment losses. A dividend of RMB 0.20 per share implies a payout ratio of approximately 75%. The company's 2026 performance guidance indicates a 0.2% increase in oil and gas output, flat refinery throughput, a 4.3% decline in domestic refined fuel sales, and a 3.4% growth in ethylene production, reflecting the impact of aging oil fields and the transition to electric vehicles. With Brent crude prices surpassing $100 per barrel amid Middle East conflicts, it is anticipated that SINOPEC's first-quarter results will benefit from improved upstream profitability and inventory gains. However, should supply disruptions persist, refining margins are expected to face downside risks. SINOPEC also faces pressures from rising freight costs, price controls on refined products, and potential export restrictions, although management has indicated that current crude and refined product inventories are sufficient to maintain normal operations.