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Oil, insurance majors may report poor earnings

By Bi Xiaoning (China Daily)
Updated: 2009-03-24 07:56

Industry heavyweights in the oil and insurance businesses may post poor earnings results for 2008, analysts have said.

Seven industry behemoths, including PetroChina, Sinopec, China Shenhua Energy Co and China Life, which together account for more than 40 percent of the market capitalization at the bourses, are scheduled to release their 2008 earnings results this week.

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"The companies in the oil and petrochemicals sector have experienced a tough time in 2008," said Qian Qimin, analyst, Shenyin & Wanguo Securities. However, he said "the market may have already discounted such gloomy news to some extent."

Sinopec, the country's largest oil refiner, warned in January that earnings may decline by up to 50 percent due to the disparity between high global crude prices and low domestic refined oil prices during the first half of 2008.

Data from the China Petroleum and Chemical Industry Association (CPCIA) suggest that China's three major oil companies - PetroChina, Sinopec and CNOOC - are expected to post combined profits of 222.8 billion yuan in 2008, a decrease of 31.3 percent from a year ago.

Analysts, however, said these three companies could expect better revenues this year due to a rebound in domestic demand and relatively stable oil prices.

China Life, the country's largest insurer also warned in January of a 50 percent fall in earnings for 2008. Another insurer, Pacific Insurance Co alerted a possible 80 percent earnings decline.

"Insurers' investment returns usually occupy a large proportion of the companies' profits. Due to a sluggish stock market in 2008, insurance companies are likely to report shrinking profits," said Tao Zheng'ao, analyst with Donghai Securities.

If bank rates are cut further to below 2.5 percent, life insurance companies would be under more pressure this year, since their rate of insurance policies would be higher than the benchmark interest rate, according to Tao.