Incidents:

The company released its 2024 semi-annual report, 2024H1. The company achieved operating income of 28.6 billion yuan, +15% year-on-year, and realized net profit to mother of 1.319 billion yuan, +0.12% year-on-year.

Comment:

24H1's performance increased steadily, the balance ratio and ROE remained steady at 2024H1. The pace of global economic recovery was uneven, international crude oil prices remained high and volatile, and domestic chemical market demand was still weak, posing challenges to industry development and corporate operations. The company has thoroughly implemented high-quality development actions, accelerated the creation of new quality productivity, and achieved steady results. With 2024H1, the company achieved revenue of 28.553 billion yuan, net profit of 1.319 billion yuan, and a steady increase in operating performance. The company's capital structure remained stable. The balance ratio as of the end of June was 61.6%, down 0.3 pct from the end of 23. The gross margin of the 24H1 company was 8.7%, down 0.3 pct from the previous year. Mainly because the products in the 24H1 equipment manufacturing business were mainly basic products such as atmospheric pressure towers, the gross margin of this division fell to 4.1% from 7.9% in the same period last year. 24H1's ROE was 4.2%, down 0.1 pct year on year, the return on invested capital was 4.3%, down 0.1 pct year on year, and the return on capital remained stable.

The amount of new contracts signed reached a record high, and overseas markets are developing strongly

2024H1, the company signed a new contract amount of 50.066 billion yuan, an increase of 32.7% over the previous year, making it the best result in the same period in history. Among them, new domestic contracts were signed at 33.113 billion yuan, up 10.6% year on year, and the volume of new contracts signed abroad was about 2.354 billion US dollars, up 117.8% year on year, continuing the strong development trend. The company's overseas business structure is more optimized, with EPC contracts accounting for more than 75%. FEED, PMC, and EPC businesses are flourishing, and the types of business are becoming more and more diverse. In the domestic market, the company signed engineering design contracts for a number of high-end new material projects such as National Energy Group Coal Chemical, CNOOC Shell Huizhou Phase III Ethylene, CNOOC Shell Huizhou Polycarbonate, and Yatong Chemical and Zhejiang Petrochemical, as well as a number of EPC general contracting contracts in the fields of refining and chemical integration, refining transformation and upgrading, and new materials. Representative contracts include the Mango Ethylene Project (6.081 billion yuan), Huajin Project (5.807 billion yuan), etc. In overseas markets, the company's representative new contracts include the Saudi Jafurah Phase III project (0.9 billion US dollars).

By industry, the industries covered by the new contracts signed by 24H1 showed a diversified trend. The amount of new contracts signed in refining, new coal chemicals, storage and transportation and other industries was +184%, +915%, and +313%, respectively, while the petrochemical industry signed new contracts were -18.9% year-on-year, and the share of new contracts signed in the petrochemical industry fell to 51% from 84% in 2023H1. 2024H1, the amount of new contracts signed by Sinopec Group and its contacts decreased by 13.5% year on year, the amount of new contracts signed from the external market increased by 62.4% year on year, and the company's expansion into the external market deepened. As of June 30, 2024, the company's on-hand orders were 157.8 billion yuan, an increase of 15.8% over the previous year, providing strong support for the continued development of the company's business.

The dividend payout ratio has increased significantly, and the repurchase process continues to be promoted

The company values investor returns, insists on paying dividends twice a year, and maintains a high dividend rate. Taking into account the company's profit level and future sustainable development needs, the board of directors decided to pay an interim dividend of RMB 0.150 per share, with a dividend ratio of 50%, which is a significant increase compared to 2023H1's 40% dividend rate. The company's dividend ratio is 5.7% based on the August 19 stock price. In 2024, the company continued to promote the repurchase process. In the first half of the year, the company repurchased 13.84 million shares, with a cumulative repurchase amount of HK$67.75 million. The company will continue to actively give back to investors through high dividends and repurchase efforts.

Approved for inclusion in the Hang Seng Composite Index, and a return to Hong Kong Stock Connect is about to be realized

On August 16, 2024, Hang Seng Index announced the results of the index review. The company was approved to be included in the Hang Seng Composite Index, which will be implemented after the market closes on September 6, 2024 and will take effect on September 9, 2024. According to the Shanghai-Hong Kong Stock Exchange trading rules, shares of companies listed on the Stock Exchange are part of the Hang Seng Composite Index, and the average market value of Hong Kong stocks at the end of the month in the 12 months before the stock adjustment survey can be transferred to Hong Kong Stock Connect. The company has fully met the conditions for returning to Hong Kong Stock Connect and will be transferred to the Hong Kong Stock Connect stock range starting September 9, which is expected to create more trading opportunities for mainland investors and increase the liquidity and investment value of the company's shares.

Domestic and foreign markets welcome new opportunities, and the company's strengthened market development is expected to fully benefit from the domestic market. China's modern industrial system is being built at an accelerated pace, and the high-quality development of the petrochemical industry is progressing steadily. The construction of a number of large-scale refining and chemical bases is progressing rapidly, the downstream petrochemical industry chain continues to expand, and capital expenditure for high-end new material projects continues to grow; related policies such as energy saving and carbon reduction transformation, process optimization and upgrading, and energy equipment upgrading have been introduced one after another, bringing more opportunities for the development of the company's main business. In terms of overseas markets, active capital expenditure in the Middle East has exceeded 100 billion US dollars, and the refining and chemical production capacity of oil-producing countries is increasing year by year. Sinopec Group deepens “Belt and Road” cooperation. The company has fully benefited from platform advantages, and the prospects for obtaining orders in the Middle East market are broad. The company is strengthening its market development efforts. With the steady progress of new contracts at home and abroad, the business is expected to usher in rapid growth.

Profit Forecasts, Valuations, and Ratings

The company's 24H1 performance remains steady, and overall in line with our expectations. The company relies on Sinopec Group's resource advantages and continues to explore domestic and overseas markets. The performance is expected to usher in rapid growth. The company's undervaluation+high dividend value is prominent in the context of state-owned enterprise reform. We maintain the company's profit forecast. The company's net profit for 2024-2026 is estimated to be 2.638, 2.915, and 3.182 billion yuan, respectively, and the corresponding EPS is 0.60, 0.66, and 0.72 yuan/share, respectively, maintaining the company's “buy” rating.

Risk warning: risk of fluctuating prosperity in the refining and chemical industry, project progress falling short of expectations, overseas market risk.