评级:买入
目标价:9.40 港元
SASAC approved management incentive scheme, next EGM on 20 Dec
SEG announced SASAC has approved the Proposed H-Share Appreciation RightsScheme (the scheme), the next would be shareholders' approval which the EGM isscheduled to be held on December 20. We believe the scheme is positive for bothshareholders and the company by aligning investors' interests with managementperformance. After the scheme, the focus will return to SEG's outlook on neworder contracts growth, and backlog improvements. Reiterate Buy with targetprice of HK$9.4 with 54% upside potentials.
Strong order pipelines in China
China's upcoming refining and chemicals projects for tender are significant. Toour understanding, there are a RMB471bn worth of total investment in projectsin China for potential tender offer in 2018E, including RMB149bn of refiningand chemical projects (excluding Sinopec-KPC [RMB57bn], Zhejiang Petrochem[RMB90bn], and Hengli Dalian Petrochem [RMB80bn] projects which EPC tenderis expected to completed in 2H17) and a potential RMB322bn of coal-to-chemicalprojects. If we assume EPC contracts worth 50% of total investment, with successrate of 100% / 50% / 20% for Sinopec / non-Sinopec R&C / CTO projects,respectively, the potential new orders could be RMB81bn, equal to 86% of currentbacklog.
Valuation & Risks
We derive our price target based on 4.8x 2018E EV/EBITDA by applying a GordonGrowth Model. Our target multiple is in line with SEG's historical mean. Currently,share price trades at 3.1x EV/EBITDA, and below -1 SD of historical mean.We expect a strong EPS recovery (at a 26% CAGR 2016-19E) with strong ROEimprovement (ROE of 11.3% in 2019E vs 6.7% in 2016) to trigger a re-rating. Keyrisks: 1) volatility in oil prices; 2) project delays; 3) FX risk; 4) cost inflation; and5) CTO project cancellation.