Introduction to this report:

The company's 2024 mid-year report was in line with expectations. The signing of the new contract was the best in the same period in history. Overseas market development accelerated growth. At the same time, the company paid more attention to shareholder returns and increased dividend payout ratios.

Key points of investment:

Maintaining the “Overweight” rating, the target price is HK$7.01. The 2024H1 performance was in line with expectations, maintaining EPS of $0.59/0.64/0.67 in 2024-26. Referring to comparable companies, considering A-H valuation factors, the PE was given 11 times in 24, the target price was raised to HK$7.01, and the “increase in holdings” was maintained.

The 2024 H1 performance was in line with expectations, and the signing of a new contract was the best in the same period in history. In the first half of 2024, the company's main revenue was 28.553 billion yuan, +15.0% year-on-year, and net profit to mother was 1.319 billion yuan, +0.1% year-on-year, mainly due to revenue contributions from Huizhou Ethylene, Zhenhai Phase II, and Nangang Ethylene projects. Among them, engineering contracting, construction, design consulting and technical licensing, equipment manufacturing revenue was 166.8/13.09/1.53/0.37 billion yuan, +17.9%/+16.0%/-12.4%/+0.6%, gross profit margin +7.2%/+6.1%/+6.1%/+31.5%/+4.1%, +0.2/+0.1/+0.7/-3.8 pcts, total gross profit of 2.495 billion yuan, net profit 4.6% month-on-month, mainly -0.7 pcts Due to the company's continuous increase in technology research and development efforts, R&D expenses increased by 0.148 billion yuan over the same period last year. The company signed a new contract of 50.066 billion yuan in the first half of the year, +32.7% year-on-year, the best result in the same period in history.

The quantity and quality of market development has increased rapidly, and overseas order performance has exceeded expectations. In the first half of '24, the company signed new domestic contracts of 33.113 billion yuan, +10.65% over the same period, 2.354 billion US dollars, compared to +117.8%, and the share of overseas contracts increased to 33.9%. At the same time, the overseas order structure was more optimized, accounting for more than 75% of EPC contracts. The representative contract was the gas compression EPC contract for the Aramco Jafurah gas expansion phase III project of 0.9 billion Saudi Arabia. In the first half of '24, the company signed 137 contracts in the field of new energy and new materials, totaling 7.406 billion yuan, +226.5% over the same period last year, and the development of emerging businesses accelerated. The guidelines for signing new contracts in 2024 at the beginning of the year were 60 billion yuan domestically and 3 billion US dollars overseas. The completion rates for the first half of the year reached 55.2% and 78.5%, respectively.

The company values shareholder returns, and the Hong Kong Stock Connect increases liquidity. In the first half of 2024, the company further increased shareholder returns. The mid-term dividend was 0.15 yuan, +26.1% year over year, and the dividend ratio increased to 50%, +10pct year on year. The company launched the 2024 share repurchase plan. A total of 13.8365 millionH shares were repurchased in the first half of the year, accounting for 0.96% of the issued H shares, and will continue to implement repurchases.

According to the Hang Seng Index announcement on August 16, Sinopec's refining and chemical engineering will be re-included in the Hang Seng Composite Index from September 9, 2024, and entering Hong Kong Stock Connect will increase the company's H share liquidity.

Risk warning: 1) Demand in overseas regions such as the Middle East and Southeast Asia has slowed beyond expectations. 2) Risk of changes in the industry policy environment. 3) The risk that contract execution and project progress fall short of expectations.