Introduction to this report:

Benefiting from the company's accelerated overseas market development, the amount of new contracts signed in 2023 exceeded expectations. With the acceleration of capacity construction in the global refining and chemical industry and the gradual growth of the company's business in emerging fields, the company's performance can be expected to grow.

Summary:

Maintaining the “Overweight” rating, the target price is HK$5.21. The amount of new contracts signed by the company in 2023 exceeds market expectations. Considering the growth in global refining and chemical investment and the company's overseas market development, we maintain our profit forecast. We expect EPS to be 0.54/0.59/0.64 in 2023-2025, maintaining a target price of HK$5.21, giving the company an “increase in holdings” rating.

The signing of a new contract in 2023 reached a record high, exceeding market expectations. In 2023, the company signed a new contract of 802.52 billion yuan, an increase of 10.7% over the previous year, reaching another record high. As of December 31, 2023, the company had contracts of 136.262 billion yuan, an increase of 21.4% over the previous year.

The company's overseas market development is accelerating, and the industry boom continues to help grow. Among the new contracts signed by the company in 2023, the overseas market was 21.447 billion yuan, an increase of 197.8% over the previous year. Representative contracts include Saudi Aramco's Riyas NGL project P1 and P2 EPC general contracting contracts (US$1,173 million) and the Saudi AMIRAL project EPC general contracting contract (US$727 million). The company successively won large contracts in the Middle East and other regions. Overseas market development continues to accelerate, and long-term growth can be expected. At the same time, benefiting from increased investment in the global refining and chemical industry, the contract amount for the refining industry to which the customer belongs reached 16.190 billion yuan, an increase of 134.8% over the previous year. Demand for capacity growth in refineries in the Middle East, Africa, Southeast Asia and other regions continues to be strong in 2024-2026, and the production capacity building boom in the refining and chemical industry continues to help the company grow.

Businesses in emerging fields enhance long-term space. In the fourth quarter of 2023, the company signed an EPC general contract with Longji Green Energy Technology Co., Ltd. (550 million yuan) for the 120,000 tons/year zero-carbon biomass methanol project, and in the third quarter, it signed a Saudi NEOM Xincheng wind power hoisting project contract (US$48 million), etc. The company continued to make efforts in the fields of new energy, new materials, new economy, etc., and the growth of business in emerging fields brought new growth space to the company.

Catalysts: The capital expenditure of the global petrochemical industry chain has accelerated, the company's overseas market expansion has accelerated, and the promotion of high-quality development policies for the domestic petrochemical industry has accelerated.

Risk warning: 1) Demand in Southeast Asia, Africa, Middle East and other regions has slowed beyond expectations. 2) Risk of changes in the industry policy environment. 3) Risk that contract execution and project progress fall short of expectations.