Introduction to this report:
The company divested the natural gas pipeline business, focused on its main business, had sufficient cash, long-term focus on shareholder returns, and contributed to the growth of terminal upgrades and LNG transportation projects.
Key points of investment:
For the first coverage, the target price was HK$5.33, giving it an “increase in weight” rating. Benefiting from the growth in domestic oil and gas import demand and the company's project construction, we expect the company's EPS in 2024-2026 to be HK$0.54, 0.56 and 0.59, respectively, with growth rates of +3%, +4%, and +6% respectively. Referring to comparable companies, comprehensive PE and PB estimates, the target price is HK$5.33, for the first time coverage, and a “gain” rating.
Focus on crude oil terminals and LNG logistics and transportation business, fully benefiting from increased demand for oil and gas imports.
In 2020, based on development strategy and group coordination, the company divested the natural gas pipeline business and sold 100% of Sinopec's Yuji Pipeline shares, focusing on crude oil terminals and LNG logistics and transportation business. Currently, 7 storage terminal companies under the company have 38 berths for various types of oil, accounting for more than half of the country's VLCC crude oil berths. The 7 terminals have a total handling capacity of 290.9 million tons/year, ranking first in the country in terms of total terminal size. China's oil and gas imports are growing rapidly, and Sinopec has successively signed a number of international LNG purchase and sale contracts. As a leading domestic petrochemical warehousing and transportation enterprise, it is expected to fully benefit.
We have plenty of cash and a long-term focus on shareholder returns. The company has a healthy cash flow. By the end of 2023, the company's cash and term deposits totaled HK$5.825 billion, accounting for 36.3% of total assets, and a balance ratio of about 3.2%. Good financial conditions and cash flow support the company's dividends and future investment in new projects. The company's dividend per share continued to grow from HK$0.04 per share in 2007 to HK$0.25 per share in 2023. The dividend payment rate in 2023 reached 48%, and the current dividend rate is about 6.30%. Compared with three barrels of oil and its subsidiaries, the dividend ratio is at an upper middle level.
Crude oil terminals have significant advantages, and terminal upgrades and LNG transportation projects have contributed to growth. The company's seven domestic warehousing and terminal companies each occupy three major coastal regions, including China's Bohai Rim Economic Zone, the Yangtze River Delta region, and the Pearl River Delta region, with obvious advantages in scale and location. On November 9, 2023, the company announced the Verbena Wharf upgrade project, which will increase Huade Petrochemical's business volume after completion. On August 22, 2023, the company announced that it and Shanghai COSCO SHIPPING LNG Investment Co., Ltd. will further invest in China Energy Transportation Investment Co., Ltd. by share ratio to build 3 LNG ships. The company's LNG transportation project business is expected to contribute to new growth.
Risk warning: 1) Geopolitical event risk. 2) Risk of changes in industry policies and macro-environment.
3) Project construction falls short of anticipated risks.