Sinopec Engineering

Sinopec Engineering vows to maintain high margins

As China Petrochemical oil refining arm debuts, chairman is confident firm can control costs

PUBLISHED : Friday, 24 May, 2013, 12:00am
UPDATED : Friday, 24 May, 2013, 3:47am

Despite rising cost pressures, Sinopec Engineering, the oil refining and chemical plants engineering subsidiary of China Petrochemical Corp, will strive to maintain a gross profit margin higher than the industry average, its chief said yesterday.

"Rising costs is something that is affecting all sorts of industries, and our gross profit margins and profits are related to industry cycles," said chairman Cai Xiyou, speaking after the company's listing debut ceremony.

"We are confident of being able to control costs after our restructuring, and given our expectation of relatively good business growth, we aim to maintain higher-than-industry margins," Cai said.

Sinopec Engineering's shares ended yesterday at HK$10.46, 0.4 per cent lower than their issue price of HK$10.50.

The company saw its overall gross margin fall to 14.3 per cent last year from 16.6 per cent in 2011, after posting a margin of 15.2 per cent in 2010.

The lower margin and higher operating expenses meant its net profit fell 1.7 per cent last year compared to 2011, to 3.32 billion yuan (HK$4.16 billion).

China Petrochemical Corp, the mainland's second largest oil and gas producer and the largest oil refiner and petrochemical producer, is Sinopec's parent.

China Petrochemical and Sinopec accounted for 50 per cent of Sinopec Engineering's revenues last year, down from 66 per cent in 2010.

The contribution from overseas operations grew to 16.9 per cent, from 11.8 per cent.

Sinopec Engineering was created last September through the amalgamation of eight operating subsidiaries.

The company raised HK$13.7 billion through a global shares offer, of which around 40 per cent has been earmarked to fund engineering and construction operations, 23 per cent will go to fund research and development, 11 per cent to boost overseas operations, 9 per cent to equipment purchases and the rest will be used for information systems upgrades and working capital.

Its listing prospectus warned investors that demand for its services was highly correlated to the competitiveness of conventional energy such as coal, oil and gas, and if alternative energies become more competitive under government subsidies and technological breakthroughs, the company's business may be affected.

It aims to distribute not less than 30 per cent of its annual net profit as dividends.