Hong Kong company reporting season

Sinopec Engineering says it can meet 2016 order intake target even as first-half income falls

The company says it typically gets at least US$1 billion of orders from Saudi Arabia every year

PUBLISHED : Monday, 22 August, 2016, 10:59am
UPDATED : Monday, 22 August, 2016, 10:46pm

Sinopec Engineering (Group) said it may meet its 2016 target of winning 46 billion yuan worth of orders this year even after reporting a 37 per cent slump in first-half earnings, because of several lucrative projects it’s currently bidding for in China and overseas.

These include large integrated oil refining and petrochemical projects in Saudi Arabia and in the Chinese provinces of Zhejiang and Fujian, a chemical project in Tianjin city, more than 20 motor fuel upgrade projects for refineries across the country and a coal-to-chemical project in Inner Mongolia developed by state-run Beijing Enterprises Group and the parent of CNOOC Ltd, China National Offshore Oil Corp.

“Traditionally we have been able to obtain at least US$1 billion worth of orders from Saudi Arabia every year, so we are fairly confident to get some good orders from there as well,” vice-chairman Lu Dong said at a Hong Kong press conference on Monday. “We are still striving to accomplish it.”

Sinopec Engineering’s 2016 net profit may fall 4.5 per cent to 3.17 billion yuan on revenue of 41.6 billion yuan, according to the average estimate of 11 analysts polled by Thomson Reuters.

First-half net income fell to 1.08 billion yuan from last year’s 1.71 billion yuan after revenue dropped 15.2 per cent, Sinopec Engineering said on Monday, in line with a profit warning last month. It will pay an interim dividend of seven fen per share, compared with last year’s 11.4 fen per share.

The company signed 8.4 billion yuan worth of new contracts in the first half, accounting for 18.3 per cent of its full-year target, down from 27.85 billion yuan in the same period last year.

Sinopec Engineering had 90.65 billion yuan worth of order backlog as of June 30. Of the backlog, 11.1 billion yuan worth of coal-to-chemical projects were taken out as their implementation has been clouded by depressed energy prices.

Of the backlog, 24.4 per cent was from new coal-to-chemical projects, 21.6 per cent from petrochemicals plants, 34.5 per cent from oil refineries and the rest from other projects.

Almost 34 per cent of the backlog was from overseas projects, up from 27.3 per cent a year ago, while 55.7 per cent was from companies other than its parent or sister firms such as listed oil and gas producer China Petroleum & Chemical (Sinopec).

After winning a US$180 million project last month in Malaysia, Sinopec Engineering was finalising a petrochemical project in Saudi Arabia and was in early talks on a potential natural gas-to-chemical project in West Siberia, Lu said. The terms of the Saudi project were still being finalised, he said.

In Iran, the company was bidding for a potential major oil refinery construction project in the second half after the United Nations lifted sanctions against the country in January, he added.

The company said in March that it aimed to add 46 billion yuan worth of new contracts this year, down from 53 billion yuan last year and 61 billion yuan in 2014, as low oil prices continued to dampen the viability of coal-to-chemical projects in China where an oil price of US$50 a barrel or above is needed to be profitable.

Shares in Sinopec Engineering closed 1.2 per cent lower on Monday in a little-changed market at HK$6.90 in Hong Kong. They have risen 9.7 per cent in the past year.

This article has been amended to say Sinopec Engineering may meet its 2016 order intake target