The company's operating income and net profit for the first half of the year were +12.4% and +6.9% year-on-year. Over 100 billion uncompleted orders are expected to guarantee steady growth in performance. Actively expanding the business layout in the low-carbon sector is expected to drive the company's strategic positioning as an integrated service provider for the entire industry chain and life cycle of the energy and chemical industry. Since the two-carbon strategy affects domestic petrochemical and coal chemical project investment in the short term, and since 2020, the epidemic has dragged down the company's new overseas business expansion and on-hand order execution, we lowered the company's 2021/2022 net profit forecast to 26.5/2.81 billion yuan (the original forecast was 29.7/3.37 billion yuan), and the additional 2023 net profit forecast was 2.96 billion yuan. The corresponding EPS forecast for 2021-2023 is 0.60/0.63/0.67 yuan, and the current stock price corresponds to 5.9/5.5/5.2 times PE, since Since the outbreak of the epidemic, the company's valuation has continued to be low, far below the average PE valuation of 11 times over the past 3 years. According to 8 times PE in 2021, the company's target price was raised to HK$5.7 (the original target price was the 2020 profit forecast, 8 times PE, corresponding to HK$5.2), and the “buy” rating was maintained.

2021H1's performance increased slightly year over year, and gross margin increased slightly year over year. In the first half of 2021, the company achieved operating income of 26.90 billion yuan, +12.4% year on year, and net profit of 1.35 billion yuan, +6.9% year on year. In the first half of the year, the company's four major sectors of design consulting and technical licensing, general engineering contracting, construction, and equipment manufacturing achieved operating revenue of 16.1, 162.7, 129.7, and 480 million yuan respectively, up to +31.2%, +4.7%, +34.9%, and +81.5%, respectively, to drive the company's revenue growth. The gross margins of the four major sectors were 32.6%, 6.8%, 6.6%, and 5.6%, respectively. The year-on-year ratio was +0.4, -0.5, -0.1, and +0.6pct, and the company's overall gross margin was 9.4%, +0.2pct over the previous year.

Major projects have driven continued growth in performance, and storage and transportation-related businesses have become a new highlight. The company's performance is highly correlated with major projects. In the first half of 2021, the company's revenue from the petrochemical industry reached 15.05 billion yuan, +4.3% year on year, mainly contributed by large-scale turnkey projects such as Zhenhai Refining and Chemical Ethylene Expansion, Zhejiang Petrochemical Phase II, Hainan Refining and Refining Ethylene and Refining and Expansion; Revenue from storage, transportation and other industries reached 5.918 billion yuan, +260.8% over the same period last year, mainly contributed by the crude oil storage facility project group and natural gas network and gas storage facility projects. Revenue from the refining and new coal chemical industries was 535 million yuan and 529 million yuan respectively, compared to -3.1% and 76.0%, respectively, because no major projects were carried out after the completion of projects such as the Kuwait Refining and Sino-Angolan Joint Coal Chemical Integration, respectively. Looking ahead to the second half of the year, the company's performance is expected to continue to grow steadily, driven by major projects such as Zhenhai Ethylene Expansion, Gulei Refining and Chemical Integration, Hainan Ethylene and Refining Expansion, Zhongsha PC, and Russian AGCC Polyolefin.

Over 100 billion uncompleted orders guarantee short-term performance, and actively expand low-carbon and digital businesses to explore the long-term future. In the first half of the year, the company signed 36.663 billion yuan of new orders, +0.1% over the same period last year, and achieved 63.2% of the annual target of 58 billion yuan of new orders. As of the interim report, the company's outstanding orders amounted to 115,466 billion yuan, an increase of 9.3% over the end of 2020, or 2.2 times the revenue in 2020. Over 100 billion unfulfilled orders is expected to guarantee a steady increase in short-term performance. In the first half of the year, the company responded positively to the “double carbon” target, actively laid out hydrogen energy, low carbon and environmental protection business, undertook the preparation of national and Sinopec Group hydrogen refueling station standards and the assumptions of Sinopec's first batch of hydrogen fueling stations, promoted the construction of photovoltaic hydrogen production projects in Kuqa and Ordos, Xinjiang (which will become the world's largest green hydrogen production project), actively promoted carbon footprint assessment projects and research topics, closely followed and actively promoted technical reserves in the fields of soil restoration, VOC treatment, sewage treatment, carbon capture, carbon neutrality green technology, etc. The company achieved new breakthroughs in digital engineering construction in the first half of the year, continued to improve the digital engineering platform, and created integrated refining and chemical projects such as Zhongke and Gulei as a benchmark model for digital engineering construction, starting with the design process. The company expands low-carbon business fields externally and promotes digital platform construction internally, laying a solid foundation for long-term development.

Risk factors: Upstream companies' capital expenditure fell short of expectations; the impact of the epidemic exceeded expectations; engineering accidents; new business development fell short of expectations.

Investment advice: The company's operating income and net profit for the first half of the year were +12.4% and +6.9% year-on-year. Uncompleted orders exceeding 100 billion dollars are expected to guarantee steady growth in performance. Actively expanding the business layout in the low-carbon sector is expected to drive the company's strategic positioning as an integrated service provider for the entire industry chain and life cycle of the energy and chemical industry. Since the two-carbon strategy affects domestic petrochemical and coal chemical project investment in the short term, and since 2020, the epidemic has dragged down the company's new overseas business expansion and on-hand order execution, we lowered the company's 2021/2022 net profit forecast to 26.5/28.01 billion yuan (the original forecast was 29.7/3.37 billion yuan), and the additional 2023 net profit forecast was 2.96 billion yuan. The corresponding EPS forecast for 2021-2023 is 0.60/0.63/0.67 yuan, and the current stock price corresponds to 5.9/5.5/5.2 times PE, since Since the outbreak of the epidemic, the company's valuation has continued to be low, far below the average of 11 times PE valuation over the past 3 years. According to 8 times PE in 2021, the company's target price was raised to HK$5.7 (the original target price was the 2020 profit forecast, 8 times PE corresponding to HK$5.2), and it still maintained its “buy” rating.