occurrences

On October 28, 2024, Sinopec released its results report for the third quarter of 2024. In the first three quarters of 2024, the company achieved operating income of 2366.541 billion yuan, a year-on-year decrease of 4.19%, and realized net profit to mother of 44.247 billion yuan, a year-on-year decrease of 16.46%. Among them, 2024Q3 achieved operating income of 790.41 billion yuan, a year-on-year decrease of 9.80%, a year-on-month increase of 0.54%, and realized net profit of 8.544 billion yuan, a year-on-year decrease of 52.15% and a year-on-month decrease of 50.86%.

Q3 Chemical demand bottomed+inventory loss. The average price difference between polyolefin and crude oil under pressure on the company's performance in the short term was 3,211 yuan/ton, up 16.10% year on year and 9.39% month on month. The company produced 10.041 million tons of ethylene in the first three quarters, a decrease of 5.8% year on year. Demand for olefin chemicals is still bottoming out. At the same time, the average settlement price of 2024Q3 Brent crude oil futures was 78.71 US dollars/barrel, a year-on-year decrease of 8.40% and a decrease of 7.43% month-on-month. The decline in the price loss of some of the company's traded crude oil, refined oil products, etc. caused impairment losses of 0.509 billion yuan in Q3 assets, which dragged down Q3 results. If terminal consumer demand improves, the profitability of the company's chemical sector is expected to recover.

The refined oil sector remains stable

The apparent consumption of refined oil products in the first three quarters of 2024 was 0.291 billion tons, up 0.96% year on year. The company processed 0.191 billion tons of crude oil in the first three quarters of 2024, a decrease of 1.6% year on year, and diesel/gasoline/kerosene production was 43.29 million tons/49.21 million tons/24.1 million tons, respectively, a decrease of 10.7%/increase of 4.1%/10.5% year on year, respectively. The refining sector continued to differentiate in 2024Q3. The average price difference between diesel, gasoline, and aviation coal was 1,099 yuan/1,619 yuan/1,416 yuan/ton respectively, a year-on-year decrease of 9.19%/an increase of 7.53%/29.24%, respectively. Meanwhile, in the first three quarters of 2024, the company's retail sales volume of refined oil products was 85.85 million tons, a year-on-year decrease of 5.7%. The overall production and sales situation of refined oil products was stable, and the performance remained stable.

Oil and gas production is rising steadily, and the performance of the exploration and development sector is stable

The company's capital expenditure for exploration and development in the first three quarters of 2024 was 50.765 billion yuan, up 0.11% year on year. It was mainly used for crude oil production in Jiyang, Tahe, etc., natural gas production capacity in western Sichuan, etc., and the construction of oil and gas storage and transportation facilities. The company's crude oil production in the first three quarters of 2024 was 0.211 billion barrels, up 0.3% year on year, and natural gas production was 1.05 trillion cubic feet, up 5.6% year on year.

Profit Forecasts, Valuations, and Ratings

We believe that under the premise that crude oil prices remain stable, the company's profit certainty is strong. We expect the company's net profit to be 58 billion yuan/70.3 billion/ 75.3 billion yuan in 2024-2026, corresponding EPS is 0.48 yuan/0.58 yuan/0.62 yuan, and the corresponding PE is 13.5X/11.2X/10.4X, maintaining a “buy” rating.

Risk warning: (1) geopolitics disrupting the global crude oil market; (2) risk of price liberalization of refined oil products; (3) risk of poor terminal demand; (4) risk of overseas business operations; (5) risk of accidents; (6) exchange rate risk; (7) force majeure factors.