The company's recent situation

Company announcement: The total value of new contracts signed by the company in 2023 was RMB 80.2 billion, an increase of 11% over RMB 72.5 billion in 2022; of these, new overseas contracts were signed at RMB 22.4 billion, a significant increase of 198% over the previous year.

The company's outstanding contract volume in 2023 was RMB 136.2 billion, an increase of 21.4% over RMB 112.2 billion at the end of 2022, a record high.

reviews

New overseas orders are expected to go further. The company announced the signing of new overseas contracts of 21.4 billion yuan in 2023, a sharp increase of 198% over the previous year, far exceeding the 1.5 billion US dollars of new overseas orders directed by the company in early 2023. Among these, the representative contract included signing EPC general contracting contracts for the P1 and P2 segments of the Riyas NGL project with Saudi Aramco, with a total contract amount of about US$1,173 billion. Looking ahead to 2024, we judge that 1) oil demand in the Middle East region will increase dramatically; 2) the Southeast Asian economy will continue to recover in terms of domestic demand and exports. The company will accelerate the pace of developing overseas markets, focusing on countries along the “Belt and Road”. Overseas orders are expected to increase further, and the order share may reach 30% of the company's.

China's new orders are relatively plentiful, and Sinopec's ethylene project is progressing steadily. The company signed a new order of 58.8 billion yuan in 2023, a decrease of 10% over the previous year. For example, it signed an EPC general contract with Beifang Huajin United Petrochemical Co., Ltd., for some installations such as ethylene, aromatic hydrocarbons, polypropylene, etc., with a total contract amount of about 15.661 billion yuan. Looking ahead, we judge that in the next 2-3 years, the company will sign new domestic contracts relatively stable (there is a 10 billion yuan contract for Huizhou ethylene in 2022, with a high base), and projects within the Sinopec Group are progressing steadily. Sinopec plans to add about 10 million tons of ethylene production capacity and overhaul/transform 5-6 million ton ethylene projects within the next 2-3 years.

The new energy project is expected to become a new highlight for the company. The company signed an EPC general contract with Longji Green Energy Technology Co., Ltd. for the 120,000 tons/year zero-carbon biomass methanol project, with a total contract amount of RMB 550 million. We believe that the company has rich experience in the field of new energy (many new energy/new materials projects have been successfully put into operation in history), and we judge that the company is expected to continue to develop in the field of new energy/new materials (and we judge that the biomass methanol market space is large and is expected to reach 10 million tons), and it is expected to become a new highlight for the company.

Profit forecasting and valuation

We kept the 2023/24 profit forecast basically unchanged, and introduced the 2025 profit forecast of 3 billion yuan for the first time. The current stock price corresponds to 6 times the 2024 price-earnings ratio and 5 times the 2025 price-earnings ratio. The target price of HK$4.5 remains unchanged, corresponding to 7 times the 2024 price-earnings ratio and 7 times the 2025 price-earnings ratio, with 4% upside compared to the current stock price. Maintaining a “outperforming the industry” rating.

risks

New orders, gross profit margins, and dividends fell short of expectations.