Earnings reports

Sinopec Engineering looks beyond China in strategy to offset domestic downturn

PUBLISHED : Monday, 21 March, 2016, 7:11pm
UPDATED : Monday, 21 March, 2016, 7:18pm


Sinopec Engineering (SEG), the oil refinery and petrochemicals plants construction unit of oil major Sinopec, will take advantage of Beijing’s “One Belt, One Road” overseas development strategy to help it offset weak domestic orders.

The state-backed firm aims to add 46 billion yuan (HK$55.2 billion) of new contracts this year, down from 53 billion yuan received last year and 61 billion in 2014, with falling domestic orders offset partially by overseas orders, especially in so-called “One Belt, One Road” nations along the ancient silk road land and maritime trade route.

Of the 46 billion yuan, 27 billion yuan is expected from the mainland, down from 33.5 billion yuan last year and 49.2 billion yuan in 2014.

“Amid domestic oversupply and weak demand [for petrochemicals], SEG faced great difficulties [to keep up its order book] last year,” president Yan Shaochun told reporters.

“The overseas market, especially one belt, one road nations where Beijing is providing great financial support for development, has certainly provided opportunities for us.”

SEG Monday posted a 4.9 per cent fall in net profit to 3.32 billion yuan for last year, as revenue dropped 7.8 per cent to 45 billion yuan - the first drop since at least 2011.

The drop comes amid cooling demand for oil refineries and petrochemical plants in China, and the construction work stoppage at two domestic coal-to-chemicals projects owing to low oil prices.

Yan said coal-to-chemical projects typically require oil prices to remain above US$50 a barrel to be economically viable.

“Everyone in the industry is waiting for the oil price to recover to this level [for construction to resume], but investment banks’ analysts tend to believe this will not happen this year,” he said.

SEG’s revenue from the mainland slid 14.4 per cent last year to 36.4 billion yuan, while that from overseas jumped 32.9 per cent to 9.1 billion yuan.

Overseas revenue took up 20 per cent of SEC’s total last year, up from 13.9 per cent in 2014.

The ratio will likely rise further this year, given the overseas market already accounted for 33 per cent of its total order backlog of 111 billion yuan at the end of last year, up from 25.6 per cent of the 104 billion yuan backlog a year earlier.

Separately, Hilong Holding, a major Shanghai-based maker of drill pipes and oilfield services provider, is in talks with two Canadian drilling technology services providers on potential cooperation that could lead to a stake acquisition.

It would help fill a technology gap of Hilong in so-called horizontal drilling technology deployed in the extraction of natural gas trapped among coal seams and shale rocks, said chief strategy officer Amy Zhang Shuman.

Hilong posted a 59.5 per cent fall in 2015 net profit to 161 million yuan.