Incidents:
On March 25, 2024, Sinopec released its 2023 annual report: in 2023, the company achieved operating income of 3212.215 billion yuan, a year-on-year decrease of 3.19%; realized net profit attributable to shareholders of listed companies of 60.463 billion yuan, a year-on-year decrease of 9.87%; and a weighted average return on net assets was 7.59%, a year-on-year decrease of 0.91 percentage points. The gross profit margin on sales was 15.65%, up 0.62 percentage points from the previous year; the net profit margin was 2.18%, down 0.10 percentage points from the previous year.
Among them, the company achieved revenue of 742,274 billion yuan in 2023Q4, -14.17% year on month; realized net profit of 7.497 billion yuan, -23.79% year on year, -58.01% month on month; ROE was 0.93%, down 0.30 percentage points year on year and 1.31 percentage points month on month. The gross profit margin on sales was 15.97%, up 3.01 percentage points year on year and decreased 0.22 percentage points from month to month; net sales margin was 1.12%, down 0.37 percentage points year on year and 1.31 percentage points from month to month.
Investment highlights:
International oil prices fluctuated widely, and the 2023 performance declined slightly year-on-year
In 2023, the world economy slowly recovered, geopolitical fluctuations intensified, macroeconomic instability and uncertainty increased, and international oil prices fluctuated widely. The domestic economy is picking up, demand for refined oil products is recovering, and there is an oversupply in the chemical market. Faced with the complex business situation and fierce market competition, the company thoroughly implemented high-quality development actions, optimized production and operation organizations in all aspects, achieved good operating performance, and achieved operating income of 3212.215 billion yuan, a decrease of 3.19% over the previous year; net profit attributable to shareholders of listed companies was 60.463 billion yuan, a decrease of 9.87% year on year. By industry, the company's exploration and development business achieved revenue of $300.19 billion, -6.1% year-on-year, gross profit margin of 22.1%, year-on-year -2.3 percentage points; refining business achieved revenue of 1529.786 billion yuan, -2.9% year-on-year, gross profit margin of 2.4%, +0.7 percentage points year-on-year; marketing and distribution business achieved revenue of 1818.429 billion yuan, +6.1%, gross profit margin of 5.2%, -0.2 percentage points year on year; chemical business achieved revenue of 515.307 billion yuan, -4.6% year on year, gross margin 1.8 percentage points %, +0.6 percentage points year over year; other businesses achieved revenue of 1538,320 billion yuan, -14.1% year over year, gross profit margin 1.4%, and -0.4 percentage points year over year. In terms of period expenses, the company's sales/management/ R&D/finance expenses rate in 2023 was 1.90%/1.86%/0.43%/0.31%, respectively, +0.14/+0.14/+0.05/0.01pct compared to the same period. In 2023, the net cash flow from the company's operating activities was $161,475 billion, an increase of RMB 45.2 billion over the previous year, mainly due to a decrease in the use of working capital.
Accruing mining rights concession proceeds affects Q4 profits
With 2023Q4, the company achieved net profit of 7.497 billion yuan, year-on-year -2.145 billion yuan, and -10.358 billion yuan; of these, gross profit of 118.537 billion yuan, year-on-year +6.429 billion yuan, and -23.364 billion yuan month-on-month. Taxes and surcharges amounted to RMB 74.412 billion, an increase of 10.647 billion yuan over the previous year, and an increase of 3.164 billion yuan over the previous year. The main reason was the mining concession proceeds and the impact of increased circulation taxes such as consumption tax. In 2023, the company calculated revenue from mining rights concessions of RMB 7.4 billion. In terms of expenses for the period, 2023Q4's sales/management/R&D/finance expenses were 163.38/175.70/40.85/2,647 billion yuan, respectively, +5.55/ -0.16/+4.00/ +614 million yuan compared to the previous year, and +6.86/+29.63/+1.93/+162 million yuan compared to the previous month. The net investment income of 2023Q4 was RMB 3,621 billion, down 16.852 billion yuan year on year, and up 4.722 billion yuan over the previous year. The main reason is that in 2022, the company signed the “Equity Transfer Agreement with Takahashi Petrochemical Co., Ltd.” on July 28, 2022. The transaction was settled on December 28, 2022, and generated revenue from the disposal subsidiary of approximately RMB 13.697 billion. Net income from changes in fair value was 6.130 billion yuan, up 9.610 billion yuan year on year and 13.268 billion yuan month-on-month, mainly due to increased profits in hedging business. Asset impairment losses were 6.054 billion yuan, a year-on-year decrease of 3,579 billion yuan, and a month-on-month increase of 5.701 billion yuan, mainly due to a year-on-year decrease in impairment of oil and gas assets and refining equipment.
New breakthroughs have been achieved by increasing oil and gas reserves, increasing production, reducing costs and increasing efficiency
In terms of exploration, the company made every effort to expand resources, increase reserves, and expand mineral rights, and strengthen risk exploration, confinement forecasting and integrated evaluation exploration. The exploration of the Shunbei New Area Belt of the Tarim Basin, deep coalbed methane in the Ordos Basin, the dense terrestrial phase oil and gas in the Sichuan Basin, and the Puguang Permian deep marine shale gas made major breakthroughs. The “Deep Earth Project” and the construction of the Shengli Jiyang Shale Oil National Demonstration Zone progressed efficiently, with an oil and gas reserve replacement rate of 131% in 2023. As of December 31, 2023, the company's proven crude oil reserves were 2003 million barrels, +41 million barrels year on year; proven natural gas reserves were 9311 billion cubic feet, +505 billion cubic feet year on year. In terms of crude oil development, the company is accelerating the construction of key crude oil production capacity in Jiyang, Tahe, and Zhunxi; in terms of natural gas development, it is actively promoting the construction of key natural gas production capacity such as Shunbei District 2 and the West Sichuan Sea, expanding the medium- and long-term LNG contract, and continuing to improve the natural gas production supply, storage and marketing system. The efficiency of the entire industry chain increased dramatically over the same period last year. In 2023, oil and gas equivalent production was 504.09 million barrels, up 3.1% year on year; natural gas production was 1337.8 billion cubic feet, up 7.1% year on year. In 2023, the company's oil and gas cash operating costs were 755.2 yuan/ton, a year-on-year decrease of 2.3%. This is mainly due to the year-on-year increase in the company's oil and gas production while continuing to increase cost control efforts, and the reduction in outsourced materials and combustion costs. The company will strengthen risk exploration, increase exploration efforts in the fields of “deep earth engineering”, shale oil and gas, etc., increase high-quality large-scale reserves; strengthen efficiency development, and improve results in stabilizing oil and gas growth and reducing costs. According to Sinopec's 2023 annual report, the company plans to produce 279.06 million barrels of crude oil in 2024, of which 26.65 million barrels are overseas; it plans to produce 1379.7 billion cubic feet of natural gas.
Sales volume of refined oil products increased dramatically, driving the transformation of an “oil and gas hydrogen electric service” integrated energy service provider in 2023. The company seized the favorable opportunity of a rapid rebound in market demand, gave full play to its advantages of integration, and vigorously expanded the market to expand sales and increase efficiency. Domestic sales of refined oil products reached a record high. The total annual sales volume of refined oil products was 239 million tons, up 15.6% year on year, of which total domestic sales volume of refined oil products was 188 million tons, up 15.8% year on year. According to Sinopec's 2023 annual report, the company will continue to consolidate and increase its market share, and plans to sell 191 million tons of refined oil products domestically in 2024. In addition to the refined oil distribution business, the company gave full play to the advantages of the existing terminal network, made every effort to promote the development of charging and switching services, promote hydrogen energy transportation demonstration applications, and transform into an “oil and gas hydrogen electric service” integrated energy service provider; actively expanded overseas business, developed domestic and foreign low-sulphur marine fuel markets, and became the second largest ship refueling enterprise in the world; continued to enrich the EasyJet service ecosystem, and continued to improve the quality and efficiency of non-oil business operations. In 2023, the company's marketing and distribution division's non-oil business revenue was 42 billion yuan, an increase of 3.9 billion yuan; the profit of the non-oil business was 4.6 billion yuan, an increase of 300 million yuan over the previous year, mainly due to the company actively exploring new retail marketing models, strengthening its own brand building, continuously expanding new business formats and marketing activities, and improving the quality of non-oil business operations.
Focus on shareholder returns and maintain a high level of cash dividends
On March 24, 2024, the company announced the A-share profit distribution plan for the end of the year 2023. The company plans to distribute cash dividends of RMB 0.2 (tax included) per share based on the total share capital registered on the day of share registration, plus the cash dividend of RMB 0.145 (tax included) per share already paid in mid-2023, and the annual dividend of RMB 0.345 per share (tax included). The corresponding cash dividend ratio is 68.22%, plus the amount of shares repurchased through centralized bidding in 2023 72.1% The company continues to maintain a high level of cash dividends, and has implemented share repurchases at home and abroad for two consecutive years to protect the company's value and shareholders' rights.
Profit forecasts and investment ratings
Taking into account the price differences of the company's main products, we made appropriate adjustments to the company's profit forecast. The company's net profit for 2024-2026 is estimated to be 682, 748, and 80.4 billion yuan, respectively, corresponding to PE 11, 10, and 9 times PE, respectively. The company operates steadily, has significant comprehensive competitive advantages in the fields of exploration, refining, chemicals, etc., and maintains a “buy” rating.
Risk warning
Fluctuations in international crude oil and natural gas prices, uncertainty in oil and gas reserves, macroeconomics and policies, international political uncertainty, industry regulation and tax policy risks, and risks of new capacity construction falling short of expectations.