The Zhitong Finance App learned that CICC released a research report stating that it maintained the “outperforming industry” rating of Sinopec Refining and Chemical Engineering (02386), and that the 2023 results were basically in line with market expectations. The profit forecast for 2024/25 is basically unchanged, and considering that the company's dividend yield remained high at 10% or more in 2024/25, and the dividend ratio increased, the target price was raised by 13% to HK$5.1.

The main views of CICC are as follows:

There has been a steady rise in new orders.

According to the company's guidelines, the target for new orders in 2024 is 60 billion yuan from China plus 3 billion US dollars from overseas, which is a steady increase over the previous year. The bank's judgment is mainly based on 1) the State Council issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-in”, which actively promotes domestic stock project renovation plans; 2) In overseas projects, energy and chemical project construction in the Middle East continues to be a high investment; 3) future green new energy+traditional energy projects have become growth points: for example, biomass methanol projects (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). The bank believes that the biomass methanol market space is large and is expected to reach the level of 10 million tons.

Gross profit margins have remained stable.

The company's gross margin in 2023 was 10%, down 0.6ppt year on year. Looking ahead, the bank believes that the company's gross margin is expected to remain basically stable. The main reason is 1) the company's increase in new orders mainly comes from overseas. Overseas Chinese companies have strong competitiveness and cost control capabilities, and there is some room for improvement in gross margin; 2) the share of EPC projects is stable; 3) the company is gradually advancing into the high-end FEED (front-end engineering design) market, and the share of high-profit projects is expected to increase.

Actively give back to shareholders.

In 2023, the company maintained a dividend payout ratio of 65% and repurchased a total of approximately 12.82 million shares, using more than HK$50 million in capital. Looking back, the bank believes that the company's dividend payout ratio is expected to be maintained, and that it will further step up repurchase efforts to continue to actively give back to shareholders.

Risk: New orders, gross profit margins, and dividends fall short of expectations.