occurrences

Company announcement: The total value of new contracts signed by the company in the first quarter of 2024 was RMB 33.764 billion, an increase of 80.3% over RMB 18.728 billion as of the first quarter of 2023.

The company's uncompleted contracts in the first quarter of 2024 was 155.688 billion yuan, an increase of 14.3% over the 136.262 billion yuan in the first quarter of 2023.

reviews

The number of new overseas orders has increased rapidly, and the share of overseas orders in hand is expected to reach 30% in 2024. In the first quarter of 2024, the company signed new overseas orders of 5.75 billion yuan, an increase of more than 4,000 percent over the previous year. The representative orders include the Saudi Aramco Jafurah gas expansion project phase II P1 section GPT4 construction contract with L&Thydrocarbon, with a total contract amount of about US$161 million; looking ahead, we judge: 1) the Middle East oil demand has increased dramatically; 2) the Southeast Asian economy will continue to pick up in terms of domestic demand and exports. The company will accelerate the pace of developing overseas markets and focus on the “Belt and Road” Overseas orders from online countries are expected to increase further. Meanwhile, in the first quarter of 2024, the company's overseas orders were 40.5 billion yuan, accounting for 26% of the total number of orders in hand, an increase of 9.4ppt over the previous year, which is a significant increase. We believe that the company favors high-margin EPC turnkey and FEED orders from overseas, and the share of overseas orders in 2024 may reach 30%.

China has a relatively plentiful supply of new orders, and demand from outside the system is good. In the first quarter of 2024, China signed a new order of 28 billion yuan, an increase of 51% over the previous year, of which the non-Sinopec Order Group signed a new order of 25.4 billion yuan, an increase of 143% over the previous year. The representative contracts were: 1) An EPC general contract was signed with North China Huajin United Petrochemical Co., Ltd. for some installations such as residual oil hydrogenation and full density polyethylene, with a total contract amount of about RMB 3.439 billion; 2) It signed a DMTO device and system for integrated renewable energy materials and biodegradable materials EPC general contracting contract for ancillary projects, with a total contract amount of RMB 2,995 billion. Looking ahead, we believe that new orders within the non-Sinopec system have shown strong resilience. The demand for the Huajin Union+ non-petroleum route ethylene project is good, providing a guarantee for the growth of new domestic orders.

The share of high-margin contracts increased, and 1Q24 revenue grew rapidly year over year. By sector, the gross margin of general engineering contracting (EPC) and design information and technology licensing (FEED) projects is generally higher than that of construction and equipment manufacturing projects. The company's share of new EPC projects in the first quarter of 2024 was about 70%, an increase of 5ppt over the previous year; FEED newly signed projects accounted for about 7%, which was basically the same as the previous year. We believe that the company is gradually entering the EPC and high-end FEED markets, and the share of high-profit projects is expected to continue to increase. At the same time, 1Q24 revenue is expected to increase significantly year-on-year.

New orders may have exceeded expectations throughout the year, and valuations are still undervalued. We judge that the new orders signed by the company throughout the year are expected to exceed the domestic 60 billion yuan plus overseas 3 billion US dollars as indicated at the beginning of the year. The company's 2024 valuation is about 7xP/e, which is still attractive.

risks

New orders, gross profit margins, and dividends fell short of expectations.