Core views
In Q1 2024, Sinopec achieved operating income of 790 billion yuan, -0.2% YoY, +6.4%; realized net profit to mother of 18.3 billion yuan, -8.9% YoY and +144.3% month-on-month; realized net profit after deduction of 18.2 billion yuan, -7.8% YoY and +74.6% month-on-month. In '24, the Q1 company closely followed market needs, carried out in-depth optimization of the entire industry chain and regional optimization, increased production and marketing collaboration, strived to expand the market and expand sales, and achieved good operating results.
In 2024, the exploration and development/refining/marketing and distribution sector of the company achieved operating income of 140/70/80 billion yuan, +9.4%/-32.9%/+1.3% year-on-year, +20.2%/+123.2%/+339.8% month-on-month, and the chemical sector achieved operating income of 1.6 billion yuan, narrowing year-on-year and month-on-month losses.
occurrences
On April 28, the company released its report for the first quarter of 2024: Q1 in 2024, the company achieved operating income of 790 billion yuan, -0.2% YoY, +6.4%; realized net profit to mother of 18.3 billion yuan, -8.9% YoY, +144.3%; realized net profit without deduction of 18.2 billion yuan, -7.8% YoY and +74.6% month-on-month.
Brief review
Business volume continued to grow, and Q1 performance improved month-on-month in '24
In 2024, Q1 achieved operating income of 790 billion yuan, -0.2% year-on-year, +6.4% month-on-month; realized net profit of 18.3 billion yuan, -8.9% year-on-year and +144.3% month-on-month; realized net profit after deduction of 18.2 billion yuan, -7.8% year-on-year and +74.6% month-on-month. International crude oil prices fluctuated upward in Q1 in '24. The average spot price of crude oil was 83.2 US dollars/barrel, up 2.4% year on year. Domestic demand for natural gas grew rapidly, demand for refined oil products continued to grow, and demand for chemical products accelerated year on year. Affected by the continuous release of new production capacity and rising raw material costs, chemical gross profit was still low. In 2024, the exploration and development/refining/marketing and distribution sector of the company achieved operating income of 140/70/80 billion yuan, +9.4%/-32.9%/+1.3% year-on-year, +20.2%/+123.2%/+339.8% month-on-month, and the chemical sector achieved operating income of 1.6 billion yuan, narrowing year-on-year and month-on-month losses.
Looking at it by sector:
In 2024, the exploration and development/refining/marketing and distribution sectors of the company achieved profit before interest and tax of 148/69/8.7 billion yuan respectively, with year-on-year changes of +11.0%/-34.1%/+2.4%, respectively. The chemical sector achieved profit before interest and tax of 1.6 billion yuan, narrowing year-on-year losses. In Q1 2024, in the exploration and development sector, the company achieved oil and gas equivalent production of 128.78 million barrels, an increase of 3.4% year on year, of which natural gas production was 35.46 billion cubic feet, an increase of 6.0% year on year. In the refining sector, the company processed 63.3 million tons of crude oil, up 1.7% year on year, and produced 38.83 million tons of refined oil products, up 4.1% year on year. In the marketing and distribution sector, gasoline business volume increased 5.4% year on year, retail sales volume of automotive LNG increased 119.3% year on year, and total sales volume of refined oil products was 59.81 million tons, up 6.5% year on year. In the chemical sector, the company achieved an output of 3.279 million tons of ethylene and a total operating volume of 19.51 million tons of chemical products.
Projects under construction are progressing steadily, and upstream, middle and downstream are developing collaboratively
The capital expenditure of Q1 in '24 was RMB 20.5 billion, of which the exploration and development sector spent RMB 13.5 billion, mainly for the construction of crude oil production capacity in Jiyang, Tahe, etc., the construction of natural gas production capacity in western Sichuan, and the construction of oil and gas storage and transportation facilities such as LNG in Longkou; the capital expenditure of the refining sector was RMB 4.1 billion, mainly for the construction of projects such as Zhenhai expansion and technological transformation in Guangzhou and Maoming; and the marketing and distribution sector. The capital expenditure of the marketing and distribution sector was RMB 600 million, mainly for integrated energy station network development, transformation of existing terminal sales networks, and non-oil business construction; The capital expenditure of RMB 2.1 billion is mainly used for the construction of Zhenhai Phase II ethylene and Maoming ethylene projects; the headquarters and other capital expenses are RMB 200 million, mainly for the construction of science and technology research and development and informatization projects.
The Group increased its shares in listed companies, demonstrating confidence in long-term development
Based on confidence in Sinopec's future development prospects, Sinopec Group Corporation, the controlling shareholder of the company, plans to increase its holdings of Sinopec A shares and H shares through itself and its wholly-owned subsidiary within 12 months from November 11, 2023. The total amount of the proposed increase is not less than RMB 1 billion, not more than RMB 2 billion. As of March 31, 2024, Sinopec Group Corporation and its wholly-owned subsidiaries have increased their holdings of the company's shares by a total of 244,626,656 shares. The plan to increase their holdings has not yet been completed; they will take the opportunity to increase their holdings in the future. In addition, the company's total cash dividend amount in 2023 was 43.575 billion yuan, with a dividend rate of 72.07%. The annual cash dividend was RMB 0.345 per share (tax included). Shareholders' return on investment was rich, and the company's long-term investment value was outstanding.
Profit forecast and valuation: The company's net profit for 2024, 2025, and 2026 is estimated to be 714/773/81.6 billion yuan, EPS 0.59 yuan, 0.64 yuan, and 0.67 yuan respectively; the corresponding PE is 10.9X, 10.1X and 9.5X, respectively.
Risk analysis
(1) Risk of changes in the macroeconomic situation: the company's operations may be affected by carbon tariffs and trade protection in some countries, the impact of uncertainty about changes in geopolitics and international oil prices on investment returns in domestic and overseas upstream projects and investment in refining and warehousing projects; (2) Risk of changes in the industry cycle: Some of the company's business and related products have cyclical characteristics, and are sensitive to macroeconomic environments, cyclical changes in regional and global economies, industry policies, production capacity and output changes, the price and supply of raw materials, and the price and supply of alternative products; (3) macro Policy and government regulatory risks: The macroeconomic policies and industrial policies that have been introduced and new changes that may occur in the future may further affect the development of the industry and the market environment, and have an impact on the company's production, operation and efficiency; (4) Risks caused by changes in environmental regulations: relevant governments may promulgate and implement stricter environmental protection laws and regulations and establish stricter environmental standards;
(5) Crude oil outsourcing risk: In recent years, crude oil prices have fluctuated greatly due to various factors such as the conflict between crude oil supply and demand, geopolitics, and global economic growth. In addition, some extremely major emergencies may also cause short-term interruptions in crude oil supply in local regions; (6) Production and operation risks and natural disaster risks: The petroleum and petrochemical industry is a high-risk industry that is flammable, explosive, toxic, harmful, and easily polluted to the environment. At the same time, it is vulnerable to natural disasters such as extreme weather;
(7) Investment risk: The petroleum and petrochemical industry is a capital-intensive industry. The project implementation process is affected by multiple factors such as the market environment, industry policies, and commodity prices, and there are certain investment risks;
(8) Overseas business development and business risks: Complex factors such as international geopolitical changes, uncertainty about economic recovery, unbalance in national and regional economic development, competitiveness in industrial and trade structures, the exclusion of regional trade groups, polarization of trade distribution benefits, and politicization of economic and trade issues, plus the political, economic, social, security, legal, and environmental risks of countries where overseas business and assets are located, such as sanctions, entry barriers, unstable fiscal and taxation policies, contract default, tax disputes, etc., will all pose challenges to the company's overseas business expansion and operation; (9) Exchange rate risk: Fluctuations in currency exchange rates will still have an impact on revenue in the upstream sector; (10) Cybersecurity risk: Once coverage is insufficient and efficiency is reduced, it may have a significant adverse impact on the company, including but not limited to the interruption of the company's production and operation activities, loss of important information such as core data, and damage to personnel, property, environment, and reputation.