Main points of investment
China Petroleum & Chemical Corp Guande: the only international warehousing and logistics platform under China Petroleum & Chemical AG. The company is a storage, transportation and trading company controlled by China Petroleum & Chemical Corp, specializing in crude oil loading and unloading, storage and transportation, as well as natural gas pipeline transportation. The company is China Petroleum & Chemical's parent company positioning international warehousing and logistics of the only platform company. In China, the company owns seven crude oil terminals such as Huizhou Huade Petrochemical Company through shareholding, with an annual design throughput of 272 million tons. In 2015, the company acquired Yuji Pipeline Co., Ltd., a subsidiary of the parent company, and opened the natural gas pipeline transportation business. In foreign countries, the company has a total of 4 storage areas, with a total design capacity of 2.78 million cubic meters.
The company is the leader of domestic crude oil terminal service and will benefit from the rapid growth of China's crude oil imports. The company is the leading domestic crude oil terminal service enterprise, and its terminal throughput accounts for more than 50% of the total domestic crude oil import and export. In 2017-2020, China entered a new peak of refining and chemical production capacity, coupled with the continuous increase in non-state crude oil import trade (the quota is expected to increase by more than 60% year on year in 2018). We predict that domestic crude oil imports will grow at an average annual rate of more than 10 per cent, especially from 2018 to 2019, which may exceed 15 per cent. In this context, the company will fully benefit from the high degree of correspondence between its own terminal resources and the area of the new refining and chemical project, and the company's crude oil throughput is expected to grow at an average annual rate of more than 40% from 2018 to 2020.
With the continuous progress of oil and gas reform, the profit space of the company's natural gas pipeline business has been opened. With the continuous progress of oil and gas reform and the marketization of natural gas pricing, it is expected that China's natural gas consumption will grow at an average annual rate of more than 13% from 2017 to 2020, especially the pulsed increase in demand brought about by the conversion from coal to gas in 2017-2018. the pattern of domestic natural gas supply and demand has changed from "oversupply" to "seasonal tension". Natural gas pipeline companies will benefit from the increase in gas delivery. Since 2017, the company's Yuji pipeline has been weakened by competition from Shandong LNG receiving station. In addition, the new depreciation regulations reduce depreciation costs, and the increase in gas transmission capacity after expansion will fully hedge against the negative benefits brought by the decline in pipeline transportation fees. Yuji pipeline profit space has been opened.
Overseas expansion or acceleration. With the expansion of China Petroleum & Chemical LNG import business, the profit scale of the company's LNG shipping business is expected to increase steadily. With the opening of domestic oil and gas and refining and chemical markets to private enterprises and the formation of a further market-oriented pattern of competition, it is expected that the pace of state-owned oil companies going out to sea to open up the market will be accelerated. As the only platform for China Petroleum & Chemical's international warehousing and logistics, Guande is bound to benefit from this trend.
Risk factors: 1, crude oil imports are not as expected; 2, Yuji pipeline capacity expansion project is not as expected; 3, the arbitration case of the company's Batam project in Indonesia has a negative impact on the company.
Profit forecast, valuation and investment rating: the company's crude oil terminal services and natural gas pipeline business are ushered in good opportunities for development, overseas market development also has room for imagination. In 2019, the forecast company's EPS for 2018 and 2019 is HK $0.44, 0.57 and 0.61, respectively. With reference to the 2018 valuation of its peers, combined with the valuation difference of Amura H, the company is given 18-year PE12 times, with a target price of HK $6.80, with a "buy" rating for the first time.