The performance of new contracts signed year to date is impressive: the amount of new contracts signed for Sinopec refining and chemical projects in the first three quarters of 2021 reached 75.6% of our annual forecast, and our forecast was 10% higher than management guidelines. The company's new signings for the year are expected to exceed our expectations. Since 1) the parent company Sinopec invested in refining and chemical-related capital expenses in the first half of the year only accounted for 38.8% of the annual budget, and 2) the multi-billion dollar ExxonMobil Huizhou project signed in April this year has not yet been included in the new contracts signed throughout the year.

Investment prospects in China's refining and chemical industry have undoubtedly been impacted by a variety of factors, including structural overcapacity, rising commodity costs, and the attendant concerns about the economic slowdown. However, we believe that these more obvious adverse factors may have overshadowed less obvious but more reliable favorable factors, including 1) the opportunities brought to EPC companies by structural transformation of the industry, 2) the good economics of large-scale investment, and 3) the positive impact of carbon reduction on investment. Therefore, the actual investment prospects may be better than market expectations.

Keeping the 2021-2023 earnings forecast unchanged, our forecasts range 3.6%-6.7% higher than Bloomberg's agreed expectations.

Reiterate the “buy” with a target price of HK$5.80. We are confident in the company's high-quality growth prospects in the context of carbon reduction in China and continued structural transformation of the industry. The company's current valuation multiplier is low compared to its historical average. We think a reasonable valuation should be higher. Our target price of HK$5.80 corresponds to 8.4 times the price-earnings ratio in 2021, which is about 0.5 standard deviations above the company's 5-year historical forward-looking price-earnings ratio.