Incidents:
The company released its 2023 annual report. In 2023, the company achieved total operating revenue of 3212.2 billion yuan, -3.19% year-on-year, realized net profit of 60.5 billion yuan, -9.87% year-on-year, and realized net profit of 60.7 billion yuan without return to mother, +4.7% year-on-year.
In a single quarter of 2023Q4, the company achieved total operating revenue of 742.3 billion yuan, -14% YoY, -15%; realized net profit of 7.5 billion yuan, -24% YoY, -58% month-on-month; realized net profit of 10.4 billion yuan, +502% YoY and -37% month-on-month.
Comment:
1. The decline in oil prices was compounded by the recovery of downstream demand. Net profit was -10% year-on-year in 23, and operating cash flow was +39% year-on-year in 2023. Demand concerns, supply restrictions, and geopolitical risks resonated. International oil prices fluctuated downward in the first half of the year, rising first and then falling in the second half of the year. The average price of Brent crude oil for the whole year was 82.17 US dollars/barrel, -17% year over year. Domestic demand for refined oil products rebounded rapidly. The annual apparent consumption of refined oil products was 385 million tons, up 11.8% year on year; natural gas demand continued to grow, with apparent domestic natural gas consumption reaching 394.5 billion cubic meters, up 7.6% year on year; demand for chemical products improved, and domestic ethylene equivalent consumption increased 8.2% year on year. The company achieved net profit of 60.5 billion yuan to mother, -9.87% year-on-year.
In 2023, the company's upstream business was affected by falling oil prices and achieved profit before interest and tax of 48 billion yuan, -15% over the same period last year.
Benefiting from the recovery in demand for refining products, the company's refining business achieved profit before interest and tax of 19.9 billion yuan, +71% over the same period last year.
Benefiting from the recovery in demand and the improved competitive environment in the market, the marketing and distribution business maintained good profitability, achieving profit before interest and tax of 29.3 billion yuan, +5.8% over the same period last year. Affected by the weak recovery in product demand and the concentrated release of production capacity, the chemical business is in a state of loss, achieving profit before interest and tax of 10.8 billion yuan.
The company's cash flow performance was good, achieving operating cash flow of RMB 161.5 billion in 2023, an increase of 38.9% over the previous year. In 2023, due to the impact of the mining concession proceeds of 7.4 billion yuan, the company's taxes other than income tax were 272.9 billion yuan, +3.4% year-on-year, which had a certain impact on the company's annual results. If this change is not taken into account, the company's net profit to mother in 2023 increased 2.4% year-on-year compared to 2022.
2. Interpretation by business: Upstream profitability declined year-on-year, refining and sales sectors achieved better performance1. Upstream business increased storage and production, and achieved new breakthroughs in cost reduction and efficiency
In 2023, the company's upstream sector achieved profit before interest and tax of 48 billion yuan, of which Q4 achieved profit before interest and tax of 6.4 billion yuan in a single quarter, -56% year-on-year, and -56% month-on-month, mainly due to falling oil and gas prices and the impact of mining rights concessions in Q4. In 2023, the company achieved a price of 76.6 US dollars/barrel, -15.2% year-on-year, and natural gas achieved a price of 1.77 yuan/square meter, or -2.1% year-on-year. In 2023, the company produced 281 million barrels of crude oil, +0.1% year over year; produced 1,338 billion cubic feet of natural gas, +7.1% year over year. In 2023, the company's upstream business actively promoted cost reduction and efficiency. The annual oil and gas cash operating cost was $15.1 per barrel, -6.8% compared with the same period last year.
The company continues to strengthen high-quality exploration, and has made major breakthroughs in exploration in the Shunbei New Area of the Tarim Basin and deep coalbed methane in the Ordos Basin. The “Deep Earth Project” and the construction of the Shengli Jiyang Shale Oil National Demonstration Zone are progressing efficiently. In 2023, the company's domestic oil and gas reserves replacement rate was 131%. At the end of the year, it was confirmed that the oil and gas reserves were 3,555 million barrels of oil equivalent, +3.7% over the same period last year.
2. Demand for refined oil products rebounded rapidly, and the profitability of the refining business significantly recovered the company's refining sector to achieve profit before interest and tax of 19.9 billion yuan in 2023, +71.4% over the same period last year, mainly due to demand recovery driving a sharp rise in the volume and price of refined products. Q4 achieved profit before interest and tax of 1,188 billion yuan in a single quarter, turning a year-on-year loss into profit of 9.5 billion yuan, or -84.2% month-on-month. The company insists on integrated collaborative optimization of production and marketing, making every effort to increase plant load. Crude oil processing volume and refined oil product production increased significantly year-on-year, dynamically strengthened resource coordination, and reduced procurement costs.
In 2023, the company's annual crude oil processing volume reached a record high, processing a total of 255 million tons of crude oil, +6.3% year over year, producing 63, 65, and 29 million tons of gasoline, firewood, and kerosene, respectively, +5.9%, +2.3%, and +60.7%, respectively. The company's gross refining profit in 2023 was $6.8 per barrel, -2.9% year-on-year, and the cash operating cost of refining was $4.1/barrel, or -8.9% year-on-year. According to changes in market demand, the company increases production of marketable products, increases export scale, and optimizes export pace and structure.
3. Leveraging the advantages of integration and networks, the profitability of the sales business continued to be at a high level. In 2023, the company's sales sector achieved profit before interest and tax of 29.3 billion yuan, +5.8% year-on-year, and Q4 achieved profit before interest and tax of 2.8 billion yuan in a single quarter, -48.8% year-on-year and -65.6% month-on-month. The company seizes the favorable opportunity of the recovery in demand for refined oil products and the improvement of the competitive environment in the market, making every effort to expand the market and increase sales efficiency, steadily increasing the level of operating volume efficiency, making every effort to promote the development of the charging and switching business, develop hydrogen energy application scenarios, and transform into an “oil, gas, and hydrogen electric service” integrated energy service provider. In 2023, the company's total domestic sales volume of refined oil products was 188.17 million tons, a record high, with retail sales of 120.12 million tons, +12.4% year over year, and direct sales distribution volume of 68.05 million tons, +11.8% year over year. In 2023, the company's non-oil business achieved a profit of 4.617 billion yuan, +7.2% year-on-year, and the profitability of the non-oil business increased steadily.
4. Chemical business optimization and adjustment to cope with market changes at low cost
In 2023, the company's chemical sector achieved profit before interest and tax of 10.8 billion yuan, and profit before interest and tax of 4.1 billion yuan in a single quarter in 23Q4. In '23, the company's total operating volume of chemical products was 83 million tons, up 1.7% year on year. It produced ethylene, synthetic resin, synthetic fiber monomers and polymers, synthetic fibers, synthetic rubber 14314, 20574, 7866, 1113, and 1424 thousand tons, respectively, with a year-on-year ratio of +6.5%, +10.9%, -11.5%, +0.1%, and +10.9%, respectively. Facing the severe situation of accelerated release of new production capacity, we are benefit-oriented, optimize raw materials, devices and product structures, strengthen cost control, reduce industrial chain costs, closely integrate production, marketing, research and use, and steadily increase the proportion of high-value-added products. The full annual chemical unit cost was 1,459 yuan/ton, or -6.2% compared to the same period last year.
5. Reasonably arrange capital expenditure plans. Upstream capital expenditure remained high. In 2023, the company achieved capital expenditure of 176.8 billion yuan, or -6.5%. Upstream, refining, sales, and chemicals achieved capital expenditure of 778, 229, 157, and 55.1 billion yuan respectively, which was -5.6%, basically flat, -17.8%, and -6.0%, respectively. Upstream capital expenditure remained high. In 2024, the company's planned capital expenditure was 173 billion yuan, of which the upstream, refining, sales, and chemical plan capital expenses were 776, 248, 184, and 45.8 billion yuan respectively, and the upstream capital expenditure was -2.1% compared to the same period last year. The company continues to strengthen the work of “increasing storage and production” to build a solid foundation for the growth of oil and gas production reserves.
3. Pay attention to investor returns, and steadily advance the work of dividends, repurchases, and majority shareholders' holdings. The board of directors of the company proposed the distribution of a final cash dividend of 0.2 yuan (tax included) per share, along with the cash dividend of 0.145 yuan (tax included) already distributed in the medium term, and a cash dividend of 0.345 yuan (tax included) per share for the whole year. The dividend rate is 68.3%. Based on the stock price on December 31, 2023, the company's dividend rate for 2023 is 6.2%.
If you add the repurchase amount during the year, the total dividend payout ratio for 2023 will reach 75% after the combined calculation. The company has long implemented a high dividend policy, values investor returns, and shares the company's development results with shareholders.
On August 28, 2023, the company issued the “Report on the Repurchase of A Shares Using Centralized Bidding Transactions” and began implementing this round of A and H share repurchases. As of March 21, 2024, the company had repurchased 143.5 million A shares, accounting for 0.12% of the company's total share capital at the end of 2023, with a repurchase amount of 816 million yuan; the company had repurchased 404.66 million H shares, accounting for 0.34% of the company's total share capital at the end of 2023, and the total amount paid was HK$1,646 million. The company's current repurchase plan is progressing steadily, showing that the company is optimistic about the company's future development prospects and determination to actively carry out market value management.
On March 27, 2023, the company announced the “Plan to Issue A Shares to Specific Targets in 2023". On March 15, 2024, the company announced that it had completed this fixed increase and actually issued 2,390 billion shares at an issue price of 502 yuan/share, raising 12 billion yuan. The net amount raised after deducting issuance fees was 11.987 billion yuan. This release reflects Sinopec Group's determination and confidence to strongly support the company's high-quality development, showing the company's positive attitude towards the capital market. At the same time, the fixed capital is used in the fields of clean energy and high-value-added materials, which is conducive to further promoting the company's business transformation and upgrading, helping the company build green and low-carbon competitiveness, and promoting the chemical business to the middle and high-end, which is of great significance to the company's long-term development.
Profit Forecasts, Valuations, and Ratings
Affected by falling oil prices, slow recovery in downstream demand, and accounting for mining rights concession earnings, the company's 23-year performance declined year on year. Considering that downstream refining and chemical demand recovery progress fell short of our expectations, we lowered the company's 24-25 profit forecast and added a 26-year profit forecast. The company's net profit for 24-26 is 704 (down 24%), 752 (down 24%), and 80.2 billion yuan, respectively. The corresponding EPS is 0.58, 0.62, and 0.66 yuan/share, respectively. We continue to be optimistic about the core competitiveness of the domestic petrochemical industry leader. In the future, as the company's new production capacity is gradually put into operation and the new energy sector layout is implemented, the company's performance is expected to increase, and long-term growth prospects are broad, so it will maintain the “buy” ratings of A shares and H shares.
Risk warning: There is a risk of a decline in crude oil prices, and the risk of a decline in the boom of refined oil products and chemical products.