UBS lowers the target price for Shanghai Petrochemical to 2.02 yuan, rating "Buy"

UBS published a research report indicating that Shanghai Petrochemical Co., Ltd. (00338.HK) is expected to see a 13% year-on-year decline in revenue to RMB 75.6 billion in 2025, with a net loss of RMB 1.4 billion, in line with earlier disclosed profit warnings. The net loss for the fourth quarter alone is projected to be RMB 1 billion, primarily due to pressure on refining fundamentals during the period, which caused the gross margin to sharply narrow from 17% in the third quarter to 12%, along with significant quarterly declines in product shipment volumes due to equipment maintenance.

The firm recommends continuing to monitor the impact of the Middle East situation on oil prices and freight rates. Shanghai Petrochemical is promoting the high-quality development of its carbon fiber business, having achieved industrial trial production of 60K large tow carbon fiber products, and is steadily advancing the high-strength medium modulus testing and application research of T800 and T1000 carbon fibers. The company expects capital expenditures of approximately RMB 6 billion in 2026.

Based on the firm's outlook for Shanghai Petrochemical's main products, they have adjusted their earnings per share forecasts for 2026 to 2028, lowering the 2026 estimate by 21% and raising the 2027 and 2028 estimates by 2% and 1%, respectively. The target price has been revised down from HKD 2.11 to HKD 2.02, with a rating of "Buy."