Brief performance review
Sinopec released its 2023 annual report on March 24, 2024. For the full year of 2023, it achieved operating income of 3212.215 billion yuan, a year-on-year decrease of 3.19%; net profit to mother was 60.463 billion yuan, a decrease of 9.87% year on year. Among them, 2023Q4 achieved operating income of 742.274 billion yuan, a year-on-year decrease of 14.17%; realized net profit to mother of 7.497 billion yuan, a year-on-year decrease of 23.79%. The performance was in line with expectations. The company's performance remained strong under the influence of large-scale mining concession payments in Q4, reflecting the scarcity of assets of leading central enterprises.
Management analysis
Strong growth in refined oil sales: The refined oil sales market continued to be strong in 2023. The company's annual retail sales volume of refined oil reached 120 million tons, an increase of 12.36% over the previous year, and continued to maintain a high level. Benefiting from the continuous correction of gasoline and diesel price differences, the profitability of the company's marketing and distribution business remained stable. At the same time, the company's chemical sector is in a state of decline and is expected to pick up. The main reason is that demand in the chemical market is still under pressure, especially for olefin products, which is still in the early stages of recovery.
The revenue from mining concessions does not change the increase in both reserves and production: the increase in marginal supply in key oil-producing countries is relatively limited. As global travel intensity continues to recover and demand for crude oil consumption gradually picks up, oil prices are expected to continue to fluctuate at medium to high levels. In 2023, the company's exploration and development capital expenditure was 78.6 billion yuan, a year-on-year decrease of 5.64%, and continued to remain at a high level. Proved crude oil reserves in 2023 were 2,003 billion barrels, up 2.09% year on year; proven natural gas reserves were 9.31 trillion cubic feet, up 5.73% year on year. The company's rich oil and gas reserves have laid a solid foundation for production growth. In 2023, the company's crude oil production reached 281 million barrels, the same as in 2022; natural gas production reached 1.34 trillion cubic feet, an increase of 7.13% over the previous year. The company plans to produce 279 million barrels of crude oil and 1.38 trillion cubic feet of natural gas in 2024, and the exploration and development sector is expected to rise steadily. In addition, in 2023, the company's taxes other than income tax were 272.9 billion yuan, an increase of 8.9 billion yuan over 2022, of which 7.4 billion yuan was calculated from mining rights concessions, which is in line with overall expectations.
High dividends from central enterprises continue to pay back to shareholders, and the return on investment is rich: the company continues to maintain high dividends, and the return on investment is rich. The company's 2023 cash dividend totaled 41.175 billion yuan, and the company's dividend payment rate reached 68.10%. At the same time, the company's dividend ratio remained at a high level. Based on the closing price on December 31, 2023, the company's dividend rate was 6.18%, including the year-end 2023 cash dividend of 0.20 yuan per share and the semi-annual cash dividend of 0.145 yuan per share. The company's shareholders had a good return on investment.
Profit Forecasts, Valuations, and Ratings
We believe that under the premise that crude oil prices remain stable, the company's profit certainty is strong. We expect the company's net profit to be 65.3 billion yuan/75.3 billion yuan/75.2 billion yuan in 2024-2026, corresponding EPS of 0.54 yuan/0.58 yuan/0.62 yuan, and the corresponding PE is 11.6X/10.7X/10.0X, maintaining a “buy” rating.
Risk warning
(1) Geopolitics disrupting the global crude oil market; (2) risk of price liberalization of refined oil products; (3) risk of sluggish terminal demand; (4) risk of overseas business operations; (5) risk of accidents; and (6) exchange rate risk.