Guosheng Securities: Initiates coverage on SINOPEC SEG with a "Buy" rating; high dividends and strong yield are highly attractive

According to the report released by Guosheng Securities, based on Sinopec SEG's (02386) order reserve and new order growth trend, it is expected that the company's net profit attributable to shareholders will be RMB 2.56 billion, 2.91 billion, and 3.27 billion for 2025-2027, representing a year-on-year growth of 4%, 14%, and 12%, respectively. The current stock price corresponds to PE ratios of 12, 10, and 9 times, with a PB-MRQ of 0.94 times, which is at a relatively low level. The expected dividend yield for 2025/2026 is 5.6%/6.3%, providing strong investment appeal, and it is given a "Buy" rating for initial coverage. Guosheng Securities' main points are as follows: Sinopec's subsidiary in energy and chemical construction operates steadily, with high dividends and strong appeal The company is a large international energy and chemical construction enterprise under Sinopec, with full-process engineering service capabilities and strong competitive strength. In recent years, the company has operated steadily, with revenue and performance CAGR of 4% and 5% from 2021 to 2024, respectively. In the first half of 2025, revenue and performance growth rates are expected to be 10% and 5%, respectively. New orders continue to grow, with year-on-year increases of 25% in 2024 and 24% in the first three quarters of 2025; the order backlog is RMB 215.5 billion, which is 3.4 times the revenue for 2024, providing strong support for performance stability. The company's historical cash flow performance has been good, with ample cash on hand (RMB 34.3 billion at the end of the first half of 2025) and substantial interest income (RMB 1.2 billion in 2024, accounting for 42% of pre-tax profit). Since 2021, the dividend payout ratio has remained above 63%, and the expected dividend yield for 2025/2026 is 5.6%/6.3%, providing strong appeal. Domestic refining: Anti-involution drives the release of capacity upgrade demand, group resources empower and support a solid foundation Since 2023, the overall profitability of the petrochemical industry has been under pressure, suppressing the willingness for capital expenditure. This year, anti-involution policies have been intensively voiced, and supply-side reforms have been vigorously promoted. At the end of September, the "Work Plan for Stable Growth in the Petrochemical Industry" was officially released, aiming for an average annual growth of over 5% in the added value of the petrochemical industry from 2025 to 2026, while also proposing to expand effective investment and focus on supporting the renovation of old petrochemical facilities. The demand for capacity replacement and upgrading is expected to accelerate. As a leader in refining engineering, the company benefits from the business resource empowerment of its major shareholder, China Petroleum & Chemical Corporation, and the core domestic main business has strong support. Overseas market: Strong demand in emerging markets such as the Middle East and Africa, the company's overseas business accelerates breakthroughs, and growth space is vast There is strong demand for petrochemical construction in emerging markets such as the Middle East, Africa, Central Asia, and Southeast Asia. The company aims for international business to account for over one-third of its development target, with overseas new orders achieving rapid growth, increasing by 80% and 39% year-on-year in 2024 and the first three quarters of 2025, respectively. Revenue contributions have begun to show, with overseas revenue growing by 92% year-on-year in 2024 and the first half of 2025, increasing its share from 10% in 2023 to 24% in the first half of 2025, indicating ample growth momentum in overseas markets. Coal chemical: The industry's prosperity is on the rise, and the trend of accelerated investment is clear, with the company's related orders and performance expected to further improve China has the characteristics of rich coal, poor oil, and scarce gas resources. Under the demand for national energy security, the importance of coal chemical construction is highlighted, and the trend of accelerated investment is clear. Several large-scale coal chemical projects in resource-rich areas such as Xinjiang, Shaanxi, and Inner Mongolia are actively advancing. Among them, the total investment scale of proposed projects in Xinjiang is nearly 900 billion yuan, and key projects have recently started the EPC bidding for core facilities, with a peak in bidding and construction expected to gradually begin in 2026. The company's new contracts for new coal chemical projects in 2024 amount to 12.4 billion yuan, which is 32 times that of 2023, increasing the proportion of total orders to 12%. There is potential for further breakthroughs in the Xinjiang coal chemical market, providing new support for domestic business. Risk Warning: Overseas operational risks, risks of capital expenditures in petrochemicals falling short of expectations, risks of declining interest rates, etc