CICC: Maintaining Sinopec's refining and chemical project (02386) outperforming the industry rating target price of HK$6.6
The Zhitong Finance App learned that CICC released a research report stating that it will keep Sinopec's refining and chemical engineering (02386) profit forecast unchanged at 2,2002.4 billion yuan for 2026/27. The current stock price corresponds to 2026/27 9x/8x P/E. Maintaining an outperforming industry rating and a target price of HK$6.6, corresponding to 2026/27 11.5x/10x P/E, with 27% upside compared to the current stock price.
CICC's main views are as follows:
1H26 results are in line with this forecast
The company announced 1H26 results: revenue of 35.6 billion yuan, +13% year on year; net profit to mother of 1.14 billion yuan, in line with the forecast; of which exchange losses and impairment affected 120 million yuan (foreign currency assets of 12.5 billion yuan), financial revenue -20% year-on-year to 364 million yuan, mainly due to a decline in deposit interest rates; the company's gross margin was -0.5ppt/month-on-month +1ppt to 7.7%, and operating cash flow of -959 million yuan. The company's interim dividend was $0.127 per share; on August 16, the company approved a repurchase capital of HK$1-150 million, with a repurchase period of 6 months.
The impact of historically low-cost overseas construction projects has gradually subsided, and gross margins have remained basically flat
1H26's construction and operating profit turned into a loss of 57 million yuan (2H25 lost 1.1 billion yuan). Saudi projects such as Marjan and Berri, which previously won the bid during the 2020/21 low rate period, have reached the end of settlement. The bank believes that the drag on profits of these projects is expected to gradually subside. 1H26's EPC segment operating profit was +10% to 870 million yuan, mainly driven by peak construction of large-scale EPC projects such as Silleno and Maoming Ethylene in Kazakhstan.
Ongoing orders are steady, and demand from the Middle East region has been transformed into new overseas orders
The company 1H26 signed a contract with Saudi Aramco for the renovation and upgrading of EPC and PMC for management consulting (all for a period of 60 months), and won the bid for the Ras Tanura refinery emergency repair project EPC (US$45 million) and the UAE ADNOC Habshan construction contract of US$750 million; 1H26 has signed a total of 20.8 billion yuan of new overseas orders, accounting for 40%, and 60% of the annual target of US$5 billion; new domestic orders of 31.2 billion yuan have been signed, and the total number of orders in hand has reached +4% /month-on-month. 2201 billion yuan. Since the strait conflict, there may be a risk that construction of Middle Eastern owners' projects will be delayed and costs will rise to a certain extent. The bank believes it may have an impact on the overall EPC profit margin in the Middle East.
Have plenty of cash on hand
The company's cash in hand was 27.5 billion yuan; the mid-term dividend payout was -20% to 0.127 yuan/share, and the dividend rate was basically flat at 49%; the company's dividend rate in '26 was 7.5%.
Risk warning: Risk of geographical conflict, overseas project progress falls short of expectations, new orders fall short of expectations.