Main points of investment:
The leading enterprise of petroleum refining and chemical project, the design advantage of sulfur recovery unit is outstanding: the company is mainly engaged in the engineering design and general contracting business of petrochemical projects, and has established a good reputation in many market segments of petroleum refining and chemical engineering design. The company contracted for the construction of China's first national crude oil reserve base, and the hydrogenation unit won the National excellent Engineering Design Gold Award. In the sulfur recovery unit design, the company has outstanding advantages, self-developed ZHSR domestic large-scale sulfur recovery technology, sulfur recovery rate of more than 99.98%, reaching the international advanced level. In 2016, the company achieved revenue of 305 million yuan (YoY-45.08%) and net profit of 60 million yuan (YoY-18.39%). Revenue fluctuations were mainly due to delays in project progress caused by low oil prices. 2017Q1, due to the reduction of projects in implementation and the start of new projects, the company's performance continued to decline, achieving a revenue of 44 million yuan (YoY-46.65%) and a net profit of 942300 yuan (YoY-51.65%). However, the company has plenty of projects on hand, and with the gradual start of the project, the follow-up performance is expected to return to the upward track.
The oil and gas reform has opened up the access of private enterprises, and the refining and chemical industry has gained a new driving force for growth: since 2015, the right to use imported crude oil has been further opened, and a number of local refineries have been granted the right to import crude oil, and have been allowed to participate in the reorganization and transformation of the petrochemical industry and base construction. Among the private enterprises, Zhejiang Sinopec has announced 1600 billion refining and chemical project investment projects, and Hengli shares have raised 11.5 billion funds to implement the "Hengli Refining and Chemical Integration Project of 2000 tons / year". The entry of private enterprises will stimulate industrial infrastructure investment and equipment upgrading, the company is expected to benefit from this industry change, business development will gain new impetus.
The company has benefited significantly from the 13th five-year Plan to increase infrastructure investment in the petrochemical industry: the national 13th five-year Plan for the petrochemical industry has been issued, and the industry development target has an average annual growth rate of 8%. Against this background, China Petroleum & Chemical Corp, the company's largest customer, announced 200 billion yuan in infrastructure investment during the 13th five-year Plan period, while others, such as Petrochina Company Limited and CNOOC, also announced capital expenditure plans of 191.3 billion and 600-70 billion in 2017. the demand for refining and chemical plants and projects will increase significantly, and the company, as a leader in refining and chemical projects, is expected to benefit significantly. In addition, seven petrochemical industry bases will be built in the 13th five-year Plan, including three in the Yangtze River Delta, the company is located in the economically developed area of the Yangtze River Delta, with rich project experience and significant location advantages, which is expected to significantly benefit from the development of the Yangtze River Delta petrochemical industry base.
The demand for environmental protection promotes the upgrading of old equipment, and the relocation of the base creates new demand: the latest environmental protection standards "Petroleum Refining Industry Pollutant Emission Standard" GB31570-2015 and "Petrochemical Industry Pollutant Emission Standard" GB31571-2015 are implemented, and the state's emission supervision over industrial enterprises becomes stricter. During the 13th five-year Plan period, sulfur, nitrogen and other emission requirements continue to rise, and the company leads the industry in sulfur recovery and FCCU emission reduction technology, which is expected to accelerate the development of the company's business in the field of petrochemical and environmental protection.
Investment suggestion: benefiting from the 13th five-year Plan, oil and gas reform policy and upgrading of environmental protection requirements, the demand for new construction and renovation projects of refining and chemical projects is expected to grow rapidly in the future, and the company's business is likely to achieve rapid development. We estimate that the company's EPS from 2017 to 2018 will be 0.65 yuan and 0.87 yuan respectively. Considering that the company is currently listed on the stock market, the valuation is on the high side and the rating is not available for the time being.
Risk tips: oil price downturn risk, macroeconomic downside risk, payback risk.