中國石化 (SNP) 2021 Q2 法說會逐字稿

Ladies and gentlemen, good morning. Welcome to Sinopec's 2021 interim results announcement. Here at Sinopec headquarters, we are joined by Director and President, Mr. Ma Yongsheng; Directors of the Board, Mr. Zhao Dong, Mr. [Yu Baocai], Mr. Liu Hong Bin, Mr. [Ling Yiqun], and Mr. Li Yong Lin; Chairman of the Supervisory Board, Mr. Zhang Shao Feng; SVP, Mr. Chen Ge; CFO, Ms. Shou Dong Hua; VP, Mr. Yu Xi Zhi; and VP, Mr. [Zhao Rifeng]; VP and Board Secretary, Mr. Huang Wen Sheng; and Senior Executive of Sinopec Group, Mr. (inaudible).

The presentation slides have been uploaded to the Company's website and are available online. Today's announcement includes three parts. First, Director and President Mr. Ma will highlight the performance of the first half of 2021; and CFO, Ms. Shou, will present operational results by segment, as well as operational plan of the second half. Finally will be -- there will be a Q&A session.

Now let's welcome Mr. Ma.

Ladies and gentlemen, good morning. Welcome to our interim results announcement. And thank you for your support for Sinopec. First, I will briefly present the Company's performance in the first half of 2021.

In the first half, global economy gradually rebounded. China achieved a sustained and steady economic recovery with a GDP growth of 12.7% year on year. The domestic demand for natural gas grew fast with an increased (technical difficulty). The domestic demand for refined oil products ticked up [and the RC] statistics show its apparent consumption increased by 5.7%. That of gasoline and kerosene went up by 10.7% and 39.8%, respectively. And that of diesel, down by 3.5%. Domestic demand for major chemicals maintained growth.

In the first half, we implemented the strategy of building a world (technical difficulty) the industrial pattern of one foundation, two [wings], and three growth drivers, and advanced towards the high end of the industrial and value chain.

We've enhanced E&P efforts. We made breakthroughs in exploration and [seed] several commercial discoveries. We sped up the construction of world-leading refining bases for high-quality development, expedited hydrogen and battery charging and swapping, degradable material, carbon fiber, and biomass chemical businesses, drove digital transformation forward, grew new businesses such as platform economy.

Meanwhile, to create a technology leading company, we made breakthroughs in key technologies and raised R&D efficiency through innovation, yielding great results. In the first half, faced with the rising international oil prices and the steady recovery in demand for petroleum and petrochemicals, we strengthened strategic planning, market expansion, system optimization, and cost control, realizing a best first-half performance in the past three years.

Operating revenue, RMB1.26 trillion, up 22%. EBIT, RMB69.4 billion, an increase of RMB9.09 billion year on year. Profit attributable to shareholders, RMB40 billion. EPS, RMB0.33. We kept optimizing debt structure. Financing costs in the first half was 2.66%, down by 0.16 percentage point. [Gearing] ratio, 51.09%, maintaining a sound financial position. As of June 30, net assets attributable to shareholders of the Company were RMB764.2 billion, up 3.1% against year-beginning.

In the first half, besides greatly improving our profitability, the Company enhanced management of inventory, receivables, and payables, and optimized payment of bills. Net cash generated from operating activities, RMB47.7 billion, up 18%. Cash used in investing activities, RMB65.8 billion. Net cash from financing activities, RMB9.1 billion. Cash and cash equivalent, RMB190.5 billion, abundant for future strategic development.

We are committed to delivering good return to shareholders. Considering cash flow, future development, return to shareholders, and the upper limit of dividend stipulated in articles of association, the Board declared an interim dividend of RMB0.16 per share, with an estimated total payout of RMB19.4 billion. Annualized, each share dividend yield was 10%.

We kept improving investment management system and raising the quality and efficiency of the investment, with a total CapEx of RMB57.9 billion. E&P, RMB24 billion, mainly for natural gas capacity building, storage, and transportation facilities, and crude oil capacity building. Refining, RMB7.9 billion, mainly for structural adjustment in refineries and hydrogen purification projects. Marketing and distribution, RMB6.8 billion, mainly for construction of service stations, integrated energy service stations offering petrol and gas, hydrogen power and services, and logistics facilities. Chemicals, RMB19 billion, mainly for ethylene projects in Zhenhai and Hainan, Jiujiang Aromatics, and (inaudible) [TTA] projects.

We actively addressed climate change and strengthened GHG emission reduction. We carried out research on the path to carbon emission peaking and carbon neutrality, released the guiding opinions on Sinopec's actions on carbon emission peaking and carbon neutrality, jointly launched China Oil and Gas Methane Alliance to control methane emission. We commissioned the Qilu-Shengli megatonne CCUS project, applying emission reduction technologies in the first half, through emission reduction measures and energy conservation and consumption reduction.

We reduced GHG emissions by 2.304 million tonnes of CO2 equivalent, recovered 716,000 tonnes of CO2, injected 155,000 tonnes of CO2 for oil flooding, and recovered 320 million cubic meters of methane, equivalent to a reduction of 4.8 million tonnes of CO2.

We strengthened HSE management and COVID-19 response (technical difficulty) occupational, physical, and psychological health of employees, at home and abroad. And we carried out the three-year program of special rectification of work safety, contributing to stable and safe production. We made headway in the green enterprise action plan, launched the three-year [contained for] improving environmental protection and pollution prevention. In the first half, COD in discharged water and SO2 emissions further dropped.

That's all for our performance highlights. Now CFO, Ms. Shou Dong Hua, will present operational results by segment.

Thank you, President Ma. In the first half, thanks to the rise in oil prices, we continue to promote high-efficiency exploration and profit-oriented developments, consolidated resource base, and increased the reserves, production, and profits. In acceleration, we redoubled efforts in new regions, made several discoveries in the Tarim, Sichuan, and Erdos Basins, and achieved major breakthroughs in continental shale oil exploration in the Bohai Bay, Sichuan, and the (inaudible) Basin.

In development, we sped up new capacity building of key projects, promoted natural gas production, strengthened defined developments of mature fields, expanded sales, and improved the profitability of natural gas, with (technical difficulty) growth in both sales volume and market share.

Oil and gas production was 235.29 million barrels of oil equivalent, up by 4.2% year on year. Domestic crude production was 123.62 million barrels; and natural gas, 582.6 million cubic meter -- cubic feet, up by 13.7% year on year. Realized price of crude was USD58.2 per barrel, up by 54.8% year on year. Natural gas, RMB1.52 per cubic meter, up by 10.9%. Excluding the impact of exchange rate changes, unit listing costs fell by 1.2% year on year. The upstream EBIT was RMB7.8 billion, up by RMB13 billion year on year.

In refining, we further coordinated production [and fills], increased the total throughput, maintained high utilization, maximized the profit along the industrial chain, optimized the crude allocation, and reduced new procurement costs. We shifted from oil production to chemicals, reduced the oil (technical difficulty) yields and diesel gasoline ratio, produced more market-favored products like gasoline and chemical light oil, and high-value-added products in the specialties; completed a (technical difficulty); developed a high-end [needle coke] and graphite material; and gained the largest share in domestic market for low-sulfur bunker fuel; and accelerated advance production capacity building.

We processed 126 million tonnes of crude, up by 13.7% year on year, and produced 72.19 million tonnes of oil products, up by 7.4% year on year. Production of gasoline, kerosene, and light chemical feedstock was up by 20.8%, 13.5%, and 17.2% year on year, respectively.

Monitoring market demand, the Company's [chance and distraction] adjustments and achieved USD11.79 per barrel of refining margin. Affected by the GA in Q2, cash operating costs increased. The refining EBIT was RMB40 billion.

In marketing, thanks to domestic refined oil consumption rebound, the Company leveraged integrated advantages, expanded the market, carried out differentiated marketing, integrated customers and marketing resources nationwide, improved service quality, accelerated the integrated energy service stations' construction, built and put into use the first carbon-neutral station and building integrated PV station.

Total oil products sales were 109 million tonnes, up by 2% year on year. Domestically, 84.01 million tonnes, up by 8.1%. The annual average (inaudible) volume per station was up by 5.7%.

Despite fears market combination, we give full play to the integration and network advantages to vigorously expand the market and sales. The marketing EBIT was RMB17.7 billion, up by 96.8% year on year. We strengthened the development and marketing of self brand products; expanded new businesses such as [alta] service, fast food, and advertising; and expanded nonfuel business with a profit of RMB2.3 billion, up by 13.2%.

In chemicals, insisting on the basic plus high-end layout, the Company accelerated downstream capacity building; promoted structural adjustments, and developed a batch of high-value-added profitable products; optimized the feedstock structure, reducing the cost; improved the unique structure and maintenance scheduling to raise the utilization; optimized the product slate by producing more high-valued-added products like [methylose] and polyolefin.

The proportion of high-value synthetic resin, rubber, and fiber was 0.3, 4.9, and 0.8 percentage points higher, respectively. Ethylene output was 6.46 million tonnes, up by 11.9%. Total chemicals -- and the company optimized the critical customer mechanism. The total chemicals sales were [14 million tonnes]. Based on the market and profit-oriented principles, the chemicals EBIT was RMB17.9 billion, maintaining at a good level.

Now I'll talk about the production and operation plans for the second half of the year. Despite the still-raging COVID-19 globally and the complex and severe external environment, the Chinese economy is expected to grow steadily based on the sound momentum in the first half. It's expected that domestic demand for oil products will remain stable, and that for chemicals and natural gas will increase. Supply capacity of oil producers, global demand growth, and inventory levels will cause international oil prices to fluctuate wildly.

In the second half, we will make more efforts into knowledge innovation, market expansion, optimization, restructuring, reform, and risk prevention with the following priorities. In E&P, we'll continue to strengthen exploration, find development, and increase reserves, production, and profits. We plan to produce 482 million barrels of oil equivalent for the whole year, up by 5%, with crude basically flat, and gas up by 13.5%. In refining, with key coordinating production and marketing shifting from oil products into chemicals and producing more high-value-added specialty products. We plan to process 252 million tonnes of crude throughout the year, up by 6.3%.

In marketing, with the opportunity of policy adjustments, we'll expand the margins and construct the integrated energy service stations. We plan to sell 170 million tonnes of oil products in domestic market in 2021, up by 1.2%. In chemicals, following the strategies of basic plus high-end, and chemicals plus materials, we'll deepen the structural adjustment of feedstock products and units, expand the industrial chain to seek new growth. We plan to produce 13 million tonnes of ethylene for the year, up by 7.8%.

In conclusion, we expect the even-greater business scale in the second half of the year and a significant year-on-year growth for 2021. The company is committed to creating greater value for shareholders and the whole society through quality development and robust performance. Thank you.

Thank you, President Ma and CFO Shou. We now open the floor for Q&A. For more interactions, please limit your questions to no more than two. Thank you.