SINOPEC ENGINEERING(2386.HK)：NEW ORDERS IN 2024 BEAT TARGET BY A WIDE MARGIN-格隆汇

机构：中银国际
研究员：Lawrence LAU/Rainey DAI

　　The value of new orders secured by Sinopec Engineering (SEG) surged 25% YoY to RMB100.6bn in 2024, 23% above its target. The strong performance in overseas market was the key growth driver. The implied turnover was in line with our forecast as it takes longer to execute overseas orders. We trim our 2024-26 earnings forecasts by 3- 4% assuming R&D related expenses booked in other income in1H24 to recur over the forecast period. We reiterate our BUY call with target price lowered to HK$6.88.
　　Key Factors for Rating
　　The value of new overseas orders jumped 80% YoY to RMB38.5bn (or US$5.34bn based on average FX rate) in 2024. It is well above its target of US$3bn. In addition to orders from traditional markets like Saudi Arabia, the company also signed a US$1.25bn contract for an ethane cracking project in Kazakhstan. The value of new domestic orders grew 6% YoY to RMB62.1bn in 2024, 3% above its target of RMB60.1bn.
　　As it takes longer to execute overseas orders compared to domestic ones, the implied turnover derived from the movement of order backlog is RMB64.2bn in 2024, basically same as our original forecast.
　　SEG’s order backlog surged 27% YoY to RMB172.7bn by end-2024. The coverage of order backlog to turnover rose from 2.42x by end-2023 to 2.69x by end-2024.
　　Given the increase in order backlog, we raise our turnover forecasts by 5% for both 2025 and 2026. However, we trim our 2024-26 earnings forecasts by 3-4% as we now assume the RMB116m expenses from R&D projects booked in other income in 1H24 to recur over the forecast period to be conservative.
　　Despite this, the company’ shares still offer attractive dividend yield of 6.7-8.3% for 2024-26E at 65% payout ratio.
　　Key Risks for Rating
　　Decline in gross margin.
　　Unexpected other expenses.
　　Valuation
　　We lower our target price from HK$7.26 to HK$6.88 mainly to reflect the small cuts in our earnings forecasts and the depreciation of RMB since our last report in late October 2024. Our target valuation remains 6.5% average 2024-26E dividend yield. Our new target price is equal to 11.2x 2024E P/E.