Sinopec released its 2024 three-quarter report. In the first three quarters of 2024, Sinopec achieved operating income of 2366.541 billion yuan, a year-on-year decrease of 4.2%; net profit attributable to shareholders of the parent company was 44.247 billion yuan (equivalent to 0.37 yuan per share), a year-on-year decrease of 16.5%. Judging from single-quarter data, the company achieved net profit of 8.544 billion yuan in the third quarter, a year-on-year decrease of 52.1%.

The fall in oil prices affected profits in the third quarter. The average price of Brent crude oil in the first three quarters of this year was 81.76, 85.03, and 78.71 US dollars/barrel, respectively. The overall decline in oil prices in the third quarter had a certain impact on the company's various businesses, and profits in all business segments declined to varying degrees from month to month.

Exploration and extraction: Oil and gas equivalent production increased. In the third quarter of this year, the company's oil and gas equivalent production was 0.128 billion barrels, up 1.68% year on year and down 0.37% month on month. The steady increase in production has helped the company maintain a relatively stable profit in this business segment. In the third quarter, the business segment achieved operating revenue of 69.62 billion yuan, a year-on-year decrease of 6.09%; realized operating income of 13.547 billion yuan, a decrease of 1.62% over the previous year.

Refining: There was a loss in a single quarter. In the third quarter, the company's refining business achieved revenue of 376.731 billion yuan, a year-on-year decrease of 7.31%; operating revenue of -0.539 billion yuan, the first quarterly loss since 2023. The fall in crude oil prices has put pressure on the company's refining costs; inventory losses have also increased operating pressure.

Chemicals: Under heavy pressure. In the third quarter, the company's chemical business achieved revenue of 135.465 billion yuan, a slight increase of 0.45% over the previous year; realized operating income of -1.732 billion yuan. Since 2022, the chemical business sector has faced significant operating pressure. Judging from the “ethylene-naphtha” price difference data, in 3Q24, the price difference was only 191.37 US dollars/ton. The average spread since the second half of 2022 was 190 US dollars/ton, which is significantly lower than the average price difference level of “ethylene-naphtha” of 425 US dollars/ton since 2012. It is expected that subsequent demand will gradually improve, leading to an increase in profits in this business sector.

Marketing and distribution: Single station refueling volume has clearly rebounded. In the third quarter, the business segment achieved revenue of 448.978 billion yuan, a year-on-year decrease of 8.16%; operating income of 2.589 billion yuan, a year-on-year decrease of 64.91%.

Profit forecasting and investment ratings. We expect the company's EPS in 2024-2026 to be 0.60, 0.61, and 0.63 yuan, respectively, and 6.92 yuan for BPS in 2024. Combined with comparable company valuation levels, according to 2024 BPS and 1.0-1.1 times PB, a reasonable value range of 6.92-7.61 yuan (corresponding to 2024 PE 12-13 times) was given to maintain a “superior to market” investment rating.

Risk warning. The fall in oil and gas prices will affect upstream business profits; the decline in the refining and chemical industry's prosperity will affect the company's refining and chemical business sector profits.