德银-中国-能源行业-中国能源会议2018纪要-20180110-11页_784kb

Asia Petrochemical Market Summary (2018)

Core Content

The document provides a comprehensive market update on the Asia petrochemical sector, with a focus on the outlook for crude oil prices, petrochemical demand growth, and capital expenditure (capex) trends. It also includes detailed analysis of two listed companies, SEG (2386.HK) and SPC-H (0338.HK), along with their financial performance and valuation metrics.

Main Market Outlook

• Crude Oil Price Forecast: IHS Markit forecasts crude oil prices to rise further to $80/bbl (in 2016 real terms) by 2025 due to strong demand growth and a decline in conventional oil production at a rate of ~2.5% per annum.
• Petrochemical Demand Growth: Petrochemical demand globally is expected to grow above GDP, with an elasticity of 1.2x over 2017–2025. Methanol and propylene chains are leading the growth, while benzene and chlorine chains are the weakest.
• Petrochemical Margins: Margins are expected to slightly dip in 2018 due to olefins margin contraction, particularly in ethylene, but are partly offset by robust non-olefins margins.
• Capex Trends: A new petrochemical capex wave is anticipated to begin in 2019, driven by both private and state-owned enterprises (SOEs) in China. The majority of US ECC capacity is expected to come online in 2018, leading to a decline in global capacity additions over the medium-term (2018–2021).
• China's Role: China is expected to be a key market for petrochemical capex, especially with the expansion of unconventional chemical capacity (CTO/CTP) driven by strong oil price expectations.

Company Highlights

SEG (2386.HK)

• Industry: Leading chemical engineering company in China.
• Services: Engages in licensing engineering and consulting, EPC contracting, construction, and equipment manufacturing.
• Market Position: One of the top 10 global contractors in the chemical and oil refining industries based on 2011 revenue.
• Valuation Metrics:
  • P/E (DB): 7.3 (2016), 15.1 (2017), 14.3 (2018), 8.6 (2019)
  • EV/EBITDA: 2.8 (2016), 4.9 (2017), 6.6 (2018), 3.2 (2019)
  • Target Price: HKD 9.40
  • Recommendation: Buy
• Financial Performance:
  • Sales Growth: -13.5% (2016), -8.0% (2017), 27.9% (2018), 5.3% (2019)
  • EBITDA Margin: 9.8% (2016), 6.7% (2017), 7.2% (2018), 9.3% (2019)
  • ROE: 14.0% (2016), 6.7% (2017), 7.7% (2018), 12.0% (2019)
• Key Metrics:
  • Payout Ratio: 39.6% (2016), 39.9% (2017), 40.0% (2018), 40.0% (2019)
  • Net Debt/Equity: -46.3% (2016), -47.1% (2017), -40.6% (2018), -50.7% (2019)
  • Capex/Sales: 0.6% (2016), 1.0% (2017), 1.5% (2018), 1.5% (2019)

SPC-H (0338.HK)

• Industry: Integrated refining and chemical company, a subsidiary of Sinopec.
• Location: Based in Shanghai Jinshan district, with refining capacity of 16mntpa and ethylene capacity of 850ktpa.
• Market Position: Strong exposure to non-PE products and healthy petrochemical margins.
• Valuation Metrics:
  • P/E (DB): 5.7 (2017), 7.3 (2018), 7.2 (2019)
  • EV/EBITDA: 5.5 (2017), 6.3 (2018), 6.0 (2019)
  • Target Price: HKD 5.20
  • Recommendation: Buy
• Financial Performance:
  • Sales Growth: -3.6% (2017), 3.0% (2018), 4.9% (2019)
  • EBITDA Margin: 11.1% (2017), 9.3% (2018), 8.8% (2019)
  • ROE: 26.8% (2017), 22.0% (2018), 19.9% (2019)
• Key Metrics:
  • Payout Ratio: 45.2% (2017), 45.2% (2018), 45.2% (2019)
  • Net Debt/Equity: -19.6% (2017), -30.3% (2018), -35.1% (2019)
  • Capex/Sales: 1.7% (2018), 1.6% (2019)

Investment Implications

• SEG (2386.HK):

  • Buy Recommendation: Expected to benefit from a petrochemical capex recovery in China.
  • Upside Potential: If more CTO/CTP capacity in China gets approvals.
  • Price Performance: Current price HKD 7.66, 52-week range HKD 6.03 - 8.32.
  • Market Cap: HKD 33,918 million (2018).

• SPC-H (0338.HK):

  • Buy Recommendation: Healthy outlook for petrochemical margins.
  • Strong Exposure: In non-PE products.
  • Price Performance: Current price HKD 4.67, 52-week range HKD 3.96 - 5.03.
  • Market Cap: HKD 77,163 million (2018).

Valuation Metrics Summary

Financial Performance Summary

SPC-H (0338.HK)

SEG (2386.HK)

Key Takeaways

• Crude oil prices are expected to rise due to strong demand and declining conventional production.
• Petrochemical demand is growing faster than GDP, with methanol and propylene leading the growth.
• Petrochemical margins may decline in 2018 due to olefins spreads but are expected to improve in the long term.
• A new capex wave is anticipated in 2019, with China being a key market, driven by private and SOEs.
• SEG and SPC-H are highlighted as buy recommendations due to their strong positions in the petrochemical sector and expected recovery in margins and capex.
• Valuation metrics and financial performance are provided for both companies, with SPC-H showing a more stable margin trend and SEG showing a higher potential for growth in the short to medium term.