Incident: The company released its report for the first quarter of 2024: Under Chinese standards, Sinopec A-shares achieved operating income of 790 billion yuan (-0.17% YoY, +6% month-on-month), net profit of 18.3 billion yuan (-9% YoY, +144% YoY), and net profit of 18.2 billion yuan (-8% YoY, +75% month-on-month).
Upstream sector profit increased: 24Q1 exploration and development sector operating profit of 12.7 billion yuan, +1.3 billion yuan (+11%) year over year. 1) The price of oil was 75 US dollars/barrel in both 23Q1 and 24Q1, which was basically the same; the price of gas was reduced from 2.1 yuan/cubic meter to 1.98 yuan/cubic meter. 2) However, the oil and gas production growth rate exceeded the 24-year target. The 24Q1 oil and gas equivalent output was 129 million barrels of oil equivalent (+3% year over year, target +1% year over year), including net oil production of 70 million barrels (+1.3% year over year, target of about +0.5% year over year) and 9.9 billion cubic meters of natural gas (+6% year over year; 24-year target +3% year over year).
Refining sector profits narrowed: 24Q1 refining sector operating profit was 6.4 billion yuan, -3.4 billion yuan (-35%) year on year.
Production of refined oil products was 38.83 million tons, +1.53 million tons (+4%) year on year. Despite the increase in refining and processing volume, the price of oil exceeds 80 US dollars/barrel, and the National Development and Reform Commission limits the price increase of gasoline and diesel, which will lead to a narrowing of the price gap of refined oil products. Although aviation coal is priced on a market-based basis, the price spread has been narrowing this year.
The chemicals sector reduced its losses: 24Q1 operating profit of the chemical sector was 1.8 billion yuan, a year-on-year loss of 300 million yuan.
The profit of the refined oil sales segment declined: 24Q1 operating profit of 7.9 billion yuan, 100 million yuan (-1%) year on year; total sales of refined oil products were 58.91 million tons, +275 tons (+5%) year on year. Although sales of refined oil products increased, the National Development and Reform Commission limited the price increase of refined oil products as a result.
The company focuses on shareholder returns: According to our latest forecast, we expect the company's net profit of 67 billion yuan in 2024, with a total dividend of 43.5 billion yuan, according to the closing price on April 26, 2024, Sinopec A shares dividend rate of 5.5%; Sinopec H shares will have a pre-tax dividend rate of 8.2%, tax deducted at 10%, and Sinopec H shares will have a dividend rate of 7.4% after tax deduction of 20%, and Sinopec H shares will have a dividend rate of 6.6% after tax.
Profit forecast and investment rating: Based on the progress of the company's strategy to stabilize oil and increase gas and the recovery in demand for refined oil products, we adjusted net profit of 670 billion yuan, 699 billion yuan, and 70.6 billion yuan respectively for 2024-2026 (previously estimated net profit to mother of 640, 666, and 67.6 billion yuan respectively). According to the closing price on April 26, 2024, the corresponding A share PE is 11.9, 11.4, and 11.3 times, and the corresponding A share PB is 0.96, 0.94, and 0.91 times; the corresponding H share PE is 7.9, 7.6, and 7.5 times, respectively, and the corresponding H share PB is 0.64, 0.62, and 0.61 times, respectively.
Risk warning: geopolitical risks; macroeconomic fluctuations; recovery in demand for refined oil products falls short of expectations