CICC: Maintain SINOPEC SEG (02386) outperform rating, target price of HK$6.10.

CICC (China International Capital Corporation) released a research report stating that it maintains its profit forecast for Sinopec SEG (02386) for the years 2025-2026. The current stock price is trading at a P/E ratio of 8x/7x for 2025/2026. The bank believes that the recent decline in the company's stock price is mainly due to fluctuations in international oil prices, considering that: 1) the company's new signed orders for the year are expected to achieve a significant year-on-year growth; 2) the company's gross profit margin is expected to recover; 3) the stability of the company's order backlog and cash flow is good, with a dividend yield of over 7%. The bank maintains an outperform industry rating and a target price of HKD 6.10, corresponding to a P/E ratio of 9x/8x for 2025/2026. Key points from CICC are as follows: Company's Recent Situation: On April 15, 2025, the company announced that the total value of new signed contracts in 1Q25 was 44.37 billion yuan, an increase of 31.4% year-on-year; the order backlog was 201.19 billion yuan, an increase of 16.5% month-on-month. The main new signed orders for the company include: 1) a total EPC contract value of 11.63 billion yuan for the Maoming Petrochemical Refining Transformation and Ethylene Quality Improvement Project; 2) a total EPC contract value of 1.96 billion yuan for the 1.5 million ton/year aromatics and refining supporting transformation project of Jiujiang Petrochemical; 3) a total EPC contract value of 2.06 billion US dollars for the Hassi Messaoud Refinery Project in Algeria. Stable Capital Expenditure by the Parent Company, Advantages of Naphtha Route Gradually Evident The company's guidance for total new signed orders in 2025 is 100 billion yuan, the same as in 2024, with 63 billion yuan in domestic orders and 5 billion US dollars in international orders. Looking ahead, the bank believes that there is still room for growth in the company's order volume, mainly due to: 1) Diversification of raw materials supporting the demand for renewal and transformation. The bank estimates that due to the impact of tariffs and the decline in international oil prices, the cost advantage of ethane cracking over naphtha cracking of about 1,500 yuan per ton may be eroded, and the marginal profit of the naphtha route may be significantly improved, which may drive the demand for diversification of raw materials in the medium to long term. 2) Sinopec's capital expenditure maintains a relatively high level. According to the company's announcement, China Petroleum & Chemical Corporation plans to invest 164.3 billion yuan in 2025, with 67.2 billion yuan in the refining segment, accounting for 41%, mainly for large-scale ethylene projects in Maoming, Zhenhai, and Qilu. The bank believes that this is expected to support the company's order and workload growth. Increase in Overseas Market Revenue Share The company's new signed Algerian national oil project in 1Q25 is believed to help the company seize the opportunities for petrochemical construction in emerging markets. The proportion of overseas revenue in FY24 increased from 10% to 17%, with a target for FY25 of overseas new signed orders to exceed 40%, and the gross profit margin is expected to rise. More than 20 billion yuan in cash on hand The company's financial situation is good, with financial income of 1.2 billion yuan in FY24, an increase of nearly 10% year-on-year, mainly benefiting from the appreciation of foreign exchange rates and translation gains. Considering the company's sufficient order backlog, the bank believes that the company's cash on hand in FY25 is still expected to steadily increase. Risk Warning: Order conversion speed is lower than expected; progress of overseas projects is slower than expected.