Incident: The company released its annual report. In 2018, the company achieved operating income of 3,078 billion yuan, an increase of 13.20% over the previous year, and achieved net profit of 1.88 million yuan to the mother, a year-on-year decline of 29.85%. The overall performance was in line with expectations. Q4 achieved revenue of 782 million yuan in a single quarter and net profit of 690,000 yuan to the mother, a year-on-year decrease of 32.35% and an increase of 155.56% over the previous quarter.
Competition for refined oil products is becoming increasingly fierce, and sales expenses have increased dramatically. In 2018, the company completed a total business volume of 412,000 tons of various types of refined oil products. Among them, the retail volume of refined oil products was 345,000 tons, a year-on-year decrease of 29,400 tons; major customers sold 63,700 tons directly, an increase of 0.74 million tons over the previous year; the decline in retail sales was mainly due to increasingly fierce competition in sales of refined oil products in Shandong. The company currently has about 200 gas stations, mainly distributed in Tai'an. The daily refueling capacity of a single gas station is only 4.72 tons, far lower than Sinopec's average of 10 tons. Furthermore, sales expenses for the full year of 2018 reached 198 million yuan, an increase of 27 million yuan over the same period in 2017. Compared with the net profit level of one million yuan, the increase in sales expenses also confirms the increasingly fierce competition in refined oil sales.
It is expected that the company's growth space is limited. The mixed reform is the future focus: since the company is mainly engaged in the retail business of refined oil products in Tai'an, the business is mainly concentrated at the end of the refining and chemical industry chain. As private refining and chemical projects are put into operation one after another, the domestic oversupply of refined oil products intensifies, and competition for refined oil retail terminals is bound to become more heated. The core competition of terminals is competition among gas stations, and the company's core assets are in the Tai'an region. Therefore, the growth space lies in developing the local refined oil consumer market in Tai'an. As local refining enterprises in Shandong gradually strengthen cooperation with private gas stations, further expand The volume of business is quite difficult, and we tend to think that the company has limited room for future growth. We believe that according to Sinopec's integrated approach to specialized restructuring and listing, the company has some platform value as a scarce listed company in the refined oil retail business.
Profit forecast: The company's net profit returned to the parent in 2019-2021 was 3/4/3 million yuan. The corresponding PB was 3.47/3.46/3.44 times, respectively, covering the “increase in holdings” rating for the first time.
Risk warning: demand for refined oil products falls short of expectations and Sinopec's mixed reform falls short of expectations