Sinopec's H1 2024 Profit Slump Amid Energy Transition Pressures: A Strategic Pivot to Green Energy and Integrated Operations as a Catalyst for Long-Term Value Creation

Sinopec Group's first-half 2024 financial results painted a stark picture of cyclical headwinds: net profits are projected to fall between RMB 20.1 billion and RMB 21.6 billion, a 39.5% to 43.7% decline year-on-year. The refining segment, which accounts for 40% of revenue, faced margin compression as global crude oil prices plummeted by over 30% since early 2024. Meanwhile, the chemical division reported a RMB 1.32 billion loss, underscoring the fragility of traditional energy markets in a shifting landscape. Yet, beneath these short-term challenges lies a strategic recalibration that could redefine Sinopec's role in the global energy transition.

Strategic Resilience: Green Energy as a Growth Engine

Sinopec's response to the profit slump has been twofold: cost discipline and a bold pivot to green energy. The company's Engineering Group (SENGF) exemplifies this shift, with revenue rising 10.1% to RMB 31.56 billion in H1 2025, driven by high-margin EPC contracts in green hydrogen and carbon capture projects. This aligns with Sinopec's ambition to invest RMB 30 billion in hydrogen development by 2025, including 1,000 hydrogen refueling stations and 1 million metric tons of annual green hydrogen production.

The company's integrated operations strategy further amplifies its long-term potential. By leveraging its entire value chain—from upstream shale gas projects to downstream hydrogen infrastructure—Sinopec is creating synergies that reduce costs and accelerate decarbonization. For instance, its 1 million-ton CCUS project in Shandong not only cuts emissions but also enhances oil recovery, blending traditional and green energy goals. Similarly, partnerships with TotalEnergies (for sustainable aviation fuel) and CATL (for EV infrastructure) position Sinopec at the nexus of clean energy innovation.

Undervalued Metrics and a Conservative Balance Sheet

Despite the profit slump, Sinopec's valuation appears compelling. The stock trades at a P/E ratio of 9.88 (TTM), far below its 10-year average of 14.2 and the industry average of 18.3. Its P/B ratio of 1.2 and debt-to-equity ratio of 0.89—supported by a Moody's A2 rating—suggest a conservative balance sheet. These metrics, combined with a 133.8% surge in P/E compared to the previous four quarters, indicate the market may be underestimating Sinopec's long-term potential.

Integrated Operations: A Blueprint for the Energy Transition

Sinopec's integrated strategy is not merely about diversification but about redefining its core competencies. By 2027, the company plans to construct 10,000 solar power stations to power its facilities, reducing reliance on fossil fuels and cutting CO2 emissions. Its world-largest PV green hydrogen project in Inner Mongolia, with a 20,000-ton annual capacity, is a testament to this vision. Meanwhile, the “Beijing-Shanghai Hydrogen Transportation Corridor” and 11 hydrogen fuel cell supply centers in China highlight its infrastructure ambitions.

Forward-Looking Outlook: Navigating the Transition

For 2025, Sinopec has trimmed its capital spending by 5% to RMB 164.3 billion, prioritizing projects with high returns in green energy. The company aims to process 130 million tons of crude oil and sell 89.8 million tons of refined products in the second half, while natural gas demand is expected to grow in China. However, refined oil products will remain challenged by alternative energy sources.

Investment Thesis: A Long-Term Play on Energy Transition

Sinopec's current struggles are cyclical, not structural. Its strategic pivot to green energy—backed by RMB 30 billion in hydrogen investments, 2 GW of wind capacity by 2025, and a 1 million-ton CCUS project—positions it as a leader in China's $1.2 trillion clean energy push. While the refining and chemical segments face near-term headwinds, the upstream and green energy divisions offer growth levers.

For investors, Sinopec's undervalued metrics and aggressive decarbonization roadmap present an opportunity. The company's ability to integrate traditional and green energy operations, coupled with its global execution capabilities (evidenced by 43.5% overseas contract wins in H1 2025), suggests resilience in a volatile market. However, patience is key: the energy transition is a marathon, not a sprint.

Conclusion

Sinopec's H1 2024 profit slump is a symptom of broader market turbulence, not a reflection of its long-term potential. By pivoting to green hydrogen, CCUS, and integrated operations, the company is not only future-proofing its business but also aligning with global sustainability trends. For value-oriented investors willing to endure short-term volatility, Sinopec represents a compelling case study in strategic reinvention—a company transforming challenges into catalysts for enduring value creation.