Guosheng Securities released a research report stating that based on SINOPEC SEG's (02386) order backlog and new contract growth momentum, the firm expects the company's net profit attributable to shareholders to reach RMB2.56 billion, RMB2.91 billion, and RMB3.27 billion for 2025-2027, representing year-on-year growth of 4%, 14%, and 12%, respectively. The current stock price implies P/E ratios of 12x, 10x, and 9x for these years, with a PB-MRQ of 0.94x, indicating undervaluation. Expected dividend yields of 5.6% and 6.3% for 2025/2026 make the stock highly attractive, prompting a first-time "Buy" rating.
Key highlights from Guosheng Securities' analysis include: 1. **Stable Operations and High Dividend Appeal**: As a leading international energy and chemical engineering subsidiary of Sinopec Group, SINOPEC SEG demonstrates strong competitiveness with full-cycle project capabilities. The company has maintained steady growth, with 2021-2024 revenue/earnings CAGR at 4%/5%, and H1 2025 revenue/earnings growth of 10%/5%. Its order backlog of RMB215.5 billion (3.4x 2024 revenue) and robust new contract growth (+25% YoY in 2024, +24% YoY in Q1-Q3 2025) underpin earnings stability.
2. **Solid Financials**: SINOPEC SEG boasts healthy cash flow, with RMB34.3 billion in cash holdings as of H1 2025 and substantial interest income (RMB1.2 billion in 2024, accounting for 42% of pre-tax profit). The company has maintained a high dividend payout ratio above 63% since 2021, with projected 2025/2026 dividend yields of 5.6%/6.3%, enhancing investor appeal.
3. **Domestic Refining & Chemical Sector**: Despite industry-wide profit pressures in 2023, recent anti-overcapacity policies and supply-side reforms, including the "Petrochemical Industry Steady Growth Work Plan" (targeting 5%+ annual value-added growth for 2025-2026), are expected to accelerate demand for capacity upgrades. SINOPEC SEG, as a market leader, benefits from Sinopec Group's resources, ensuring stability in its core domestic business.
4. **Overseas Expansion**: Emerging markets in the Middle East, Africa, Central Asia, and Southeast Asia are driving robust demand for petrochemical projects. Targeting over one-third international revenue share, SINOPEC SEG has achieved rapid overseas order growth (+80% YoY in 2024, +39% YoY in Q1-Q3 2025), with overseas revenue surging 92% in both 2024 and H1 2025, now contributing 24% of total revenue (up from 10% in 2023).
5. **Coal Chemical Opportunities**: With China's coal-rich resource profile, coal chemical projects are gaining strategic importance for energy security. Large-scale projects in Xinjiang, Shaanxi, and Inner Mongolia (totaling ~RMB900 billion in Xinjiang alone) are progressing, with EPC tenders for key facilities expected to peak from 2026. SINOPEC SEG's new coal chemical orders skyrocketed to RMB12.4 billion in 2024 (32x 2023 levels), representing 12% of total orders, positioning it for further breakthroughs in Xinjiang.
**Risks**: Overseas operational risks, potential shortfalls in petrochemical capex, and interest rate declines.