Incident 1: On March 24, the company released its 2023 annual report. In 2023, the company achieved revenue of 3212.2 billion yuan, -3.2% year-on-year; net profit to mother of 60.5 billion yuan, -9.9% year-on-year; net profit after deduction of 60.7 billion yuan, +4.7% year-on-year. The fourth quarter achieved revenue of 742.3 billion yuan, -14.2% YoY, -15.3%; net profit to mother of 7.5 billion yuan, -23.8% YoY, -58.0% month-on-month; net profit after deduction of 10.4 billion yuan (YoY), +440.9% YoY, and -37.4% month-on-month.

Incident 2: On April 28, the company released its 2024 quarterly report. In the first quarter, the company achieved revenue of 790 billion yuan, -0.2% year-on-year, +6.4% month-on-month; net profit of 18.3 billion yuan, -8.9% year-on-year and +144.3% month-on-month; net profit after deduction of 18.2 billion yuan, -7.8% year-on-year and +74.6% month-on-month.

23 years: Integrated business performance is steady, and mining rights concessions affect profits. 1) Exploration and development: Achieved oil and gas equivalent production of 504.09 million barrels in 23 years, +3.1% over the same period last year. Among them, crude oil production was 281.12 million barrels, +0.1% year on year; natural gas production was 1337.82 billion cubic feet, +7.1% year over year, achieving another excellent result in stabilizing oil and gas growth. 23Q4 was affected by one-time accrued mining rights concession revenue of 7.4 billion yuan, squeezing the operating income of the sector. 2) Refining: Against the backdrop of a year-on-year decline in refined oil prices due to lower international oil prices, the company's crude oil processing and refined oil production volumes were +6.3% and +11.3% year-on-year respectively, and operating income bucked the trend, with a year-on-year increase of 68.8%. 3) Chemicals: In order to overcome the unfavorable situation of industry supply pressure and low product sentiment, the company further promoted the construction of high-value-added chemical products such as EVA and POE, and achieved a loss of 8.91 billion yuan over the same period last year. 4) Marketing and distribution: In '23, the company's refined oil sales and non-oil business went hand in hand, achieving operating profits of 25.531 billion yuan and 4.617 billion yuan respectively, compared to +3.34 billion yuan and +312 billion yuan compared to the same period last year. Seize the opportunity to expand market sales, and achieved a total sales volume of refined oil products of 239 million tons throughout the year, +15.6% over the same period last year.

24Q1: Upstream volume increased and costs decreased, and middle and downstream profits narrowed under high oil price limits. 1) Exploration and development: 24Q1 oil and gas equivalent production exceeded target growth, +3.4% year over year (planned to be +1.0% year over year). Crude oil and natural gas production were +1.3% and +6.0%, respectively, year over year. Against the backdrop of stable oil prices and falling gas prices, EBIT was +11.0% year over year. In addition to inventory revenue, the reduction in the cost side is also one of the reasons for the company's upstream business to increase profits. Oil and gas cash operating costs were -0.3 US dollars/barrel of oil equivalent compared to the same period last year. 2) Refining: Although crude oil processing volume was +1.7% year-on-year in 24Q1, due to the domestic price setting mechanism for refined oil products, the normal processing profit margin will be deducted when the oil price is above 80 US dollars/barrel. The sector's operating profit is 3.424 billion yuan year-on-year. 3) Chemicals: In the context of domestic economic recovery and recovery, although production capacity release is still at its peak, with the improvement in downstream demand and the company's low cost strategy, unit processing costs decreased by -158 yuan/ton and profit loss by 316 million yuan year over year. 4) Marketing and distribution: Also affected by the NDRC's pricing mechanism for refined oil products. In the context of price limits, although the total sales volume of refined oil products in the 24Q1 single quarter was +6.5% year-on-year and non-oil business profit was +82 million yuan year-on-year, the sector's operating profit fell 115 million yuan year over year.

Capital expenditure has been relatively slow, and the strategy for stabilizing oil and increasing gas has not changed. In terms of capital expenditure, the company's cumulative capital expenditure in '23 was 176.8 billion yuan, year-on-year; by sector, exploration and development/refining/marketing and distribution/chemical capital expenditure was 786/229/157/55.1 billion yuan, respectively, and -47/- 34./- 3.5 billion yuan. According to promotional materials, the planned capital expenditure for 24 years is 173 billion yuan, compared with the previous year - 3.8 billion yuan. Among them, the capital expenditure for the exploration and development/refining/refined oil sales/chemical sector is estimated at 778/248/184/45.8 billion yuan, respectively, compared with -8/+19/+27/ -9.3 billion yuan compared to the same period last year. In terms of production planning, the company expects to achieve oil and gas production of 509.01 million barrels of oil equivalent in 24 years, +1.0% over the same period last year. Among them, domestic crude oil production was 252.41 million barrels, +0.3% year on year; natural gas production was 1379.70 billion cubic feet, +3.1% year over year.

High dividends focus on shareholder returns, and the investment cost ratio is outstanding. The total amount of cash dividends accumulated by the company in '23 was 43.58 billion yuan, of which the dividend and repurchase amounts were 41.25 billion yuan and 2.33 billion yuan respectively. Based on December 31, '23, when considering only dividends, the dividend ratio of the company in '23 is about 68.2%, which corresponds to the dividend rate of 6.2%/8.5% for A/H shares; if dividend+repurchase is considered, the dividend ratio for '23 is about 72.1%, which corresponds to the dividend ratio of 6.5%/8.9% for A/H shares, respectively.

Profit forecast and investment advice: Based on the data disclosed in the company's annual report and oil price judgment, we adjusted the profit forecast. The company's net profit for 24-26 is 708.0, 753.5, and 80.62 billion yuan respectively (the previous forecast was 784.2 billion yuan and 84.31 billion yuan respectively for 24-25). The PE corresponding to the current stock price is 11.0, 10.3, and 9.6 times, respectively, and the corresponding PB is 0.9, 0.9, and 0.8 times, respectively, maintaining the “buy” rating.

Risk warning: demand falls short of expectations; oil prices fluctuate greatly; exchange rate fluctuations; project progress falls short of expectations; untimely information updates, etc.