Key points of investment

Incident 1: The company released its 2024 semi-annual report: achieved operating income of 1576.1 billion yuan (-1% YoY, -3% month-on-month), net profit of 35.7 billion yuan (YoY +2%, +41% month-on-month), and net profit of 35.6 billion yuan (YoY +6%, YoY +32%).

Incident 2: The company plans to use no less than 0.8 billion yuan and no more than 1.5 billion yuan of its own capital to buy back the company's A shares through centralized bidding transactions. The maximum price of the repurchased shares is not more than RMB 9.81 per share. All repurchased shares will be cancelled and the registered capital reduced.

Incident 3: The company formulates a shareholder dividend return plan for the next three years. From 2024 to 2026, the company's annual cash dividend ratio will not be less than 65%.

Upstream sector profit increased: 24H1 exploration and development sector operating profit of 26.8 billion yuan, +5 billion yuan (+23%) year on year. (1) Price: The realized price of oil at 24H1 was 77.8 US dollars/barrel, +6% year over year; the realized price of gas decreased from 1.95 yuan/square meter to 1.90 yuan/square meter, -2.8% year over year. (2) Volume: The growth rate of oil and gas production exceeds the 24-year target, with 24H1 oil and gas equivalent production of 258 million barrels of oil equivalent (+3% year over year; 24-year target +1%), including net oil production of 140 million barrels (+0.6% year over year, target +0.5% year over year) and 19.8 billion cubic meters of natural gas (+6% year over year; 24-year target +3%).

The refining sector's profit narrowed: 24H1 refining sector's operating profit was 6.4 billion yuan, -3.5 billion yuan (-35%) year on year.

Production of refined oil products was 77.3 million tons, +1.23 million tons (+2%) 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 market-based, the overall price spread has narrowed this year.

The chemicals sector reduced its losses: 24H1 chemical sector operating profit - 3.6 billion yuan, a year-on-year loss of 0.5 billion yuan.

The profit of the refined oil sales segment declined: 24H1 marketing and distribution segment operating profit was 14.5 billion yuan, -2.2 billion yuan (-13%) year on year; total sales volume of refined oil products was 119.01 million tons, +2.41 million tons (+2%) year on year. Although sales of refined oil products increased, the National Development and Reform Commission limited the increase in the price of refined oil products.

The company focuses on shareholder returns: the company plans to distribute a cash dividend of RMB 0.146 (tax included) per share in 2024H1. According to our latest forecast, we expect the company's net profit of 2024 to be 70.4 billion yuan, with a total dividend of 45.8 billion yuan according to the closing price on August 23, 2024, Sinopec A shares dividend rate of 5.5%; Sinopec H shares will have a pre-tax dividend ratio of 8.1%, tax-deducted at 10%, and Sinopec H shares will have a dividend rate of 7.3% after tax deduction of 20%, and Sinopec H shares will have a dividend rate of 6.4% after tax.

Profit forecast and investment rating: Based on the progress of the company's strategy to stabilize oil and gas and increase demand for refined oil products, we adjusted net profit of 70.4, 73, and 74.5 billion yuan respectively for 2024-2026 (previously estimated net profit to mother of 67, 69.9, and 70.6 billion yuan respectively for 2024-2026). According to the closing price on August 23, 2024, the corresponding A share PE is 11.8, 11.4, and 11.15 times, respectively, and the corresponding A share PB is 1.00, 0.97, and 0.94 times; the corresponding H share PE is 8.1, 7.8, and 7.6 times, respectively, and the corresponding H share PB is 0.68, 0.66, and 0.64 times, respectively.

Risk warning: geopolitical risks; macroeconomic fluctuations; recovery in demand for refined oil products falls short of expectations