16 April 2016  THIS CONTENT MAY NOT BE DISTRIBUTED TO THE PEOPLE'S REPUBLIC OF CHINA (THE "PRC") (EXCLUDING SPECIAL ADMINISTRATIVE REGIONS OF HONG KONG AND MACAO)

EQUITIES Engineering (2386 HK) ENERGY EQUIPMENT

Buy: Structural growth offsets weak coal chemical orders China

 Solid backlog and new project pipeline should support strong MAINTAIN BUY rebound in order book and profitability from the 2016 trough  Though coal chemical investment is waning, new investment TARGET PRICE (HKD) PREVIOUS TARGET (HKD) to produce cleaner and value-added products should catch up 7.80 7.60  TP up 3% to HKD7.8; shares outperformed peers YTD; SHARE PRICE (HKD) UPSIDE/DOWNSIDE maintain Buy rating 6.78 +15.0% (as of 15 Apr 2016)

Investment thesis. Sinopec Engineering’s (SEG) share price has been one of the best MARKET DATA Market cap (HKDm) 30,378 Free float 33% performers among our global oil engineering universe during the ongoing oil price Market cap (USDm) 3,916 BBG 2386 HK downturn. The shares are up 30+% since the start of 2015, while 27 global peers fell 3m ADTV (USDm) 2.21 RIC 2386.HK c.10% on average. We think SEG’s 2.2x backlog/revenue ratio can support stable a FINANCIALS AND RATIOS (CNY) revenue level through to 2018e, even with a weaker-than-guided 2016 new order book. Year to 12/2015a 12/2016e 12/2017e 12/2018e Several mega project EPC contracts are likely to be signed in 2017-18e, supporting a HSBC EPS 0.75 0.68 0.75 0.83 HSBC EPS (prev) - 0.70 0.77 - rebound in earnings and new contract momentum. Further, we think SEG’s strong Change (%) - -2.9 -2.6 - Consensus EPS 0.74 0.68 0.70 0.71 financial position will be able to support a 40% annual dividend pay-out as well as value- PE (x) 7.6 8.3 7.5 6.8 accretive acquisitions in a down market. Dividend yield (%) 5.2 4.8 5.3 5.9 EV/EBITDA (x) 3.1 3.0 2.3 1.7 New investment to produce cleaner and value-added product should drive new ROE (%) 14.0 11.9 12.1 12.4

order book. Although we see limited new orders from coal chemical projects when oil 52-WEEK PRICE (HKD) prices remain below USD60/b, SEG should be able to grow its order book as a result of new investment in old refinery relocation, plant reconfiguration for feedstock diversification 8.80 and flexibility, new capacities to produce high value-added products; and environmental 7.00 upgrades. Favourable government policies are helping refineries to generate funding for 5.20 Apr 15 Oct 15 Apr 16 such projects. In the overseas market, SEG may leverage cheap funding from Chinese Target price: 7.80 High: 8.39 Low: 5.62 Current: 6.78 policy banks and the newly established China-led Asian Infrastructure Investment Bank to Source: Thomson Reuters IBES, HSBC estimates invest in “One Road One Belt” countries and regions. SEG has recently started evaluating opportunities in Iran. Tingting Si* Analyst 1Q16 opstats update. Quarterly new contract of RMB4.4bn (only 9% of 2016 target and The Hongkong and Shanghai Banking Corporation Limited 47% lower y-o-y) may point to a weak start, but we think the company will be able to catch [email protected] +852 2996 6590 up to meet 2016 new order target of RMB46.5bn. SEG signed no overseas contract and Thomas C. Hilboldt*, CFA almost zero coal chemical related contracts. 1Q16 revenues of RMB7.7bn are flat y-o-y Head of Resources & Energy Research, Asia Pacific and backlog of RMB108bn is down 3% from end-2015 level. The Hongkong and Shanghai Banking Corporation Limited [email protected] Maintain Buy rating and raise fair value TP by 3% to HKD7.8 (was HKD7.6). Our TP +852 2822 2922 is derived by applying a 10.1x (was 9.6x) PE to our 2016e EPS of RMB0.68 (was Wayne Wang* Associate RMB0.7), which is a 1x PEG ratio on 2016-18e net income CAGR of 10.1% (was 9.6%). The Hongkong and Shanghai Banking Corporation Limited Our TP is 3% above consensus. Downside risks include: an extended period of low oil [email protected] +852 2914 9935 prices, higher-than-expected downstream capex cuts by major customers such as

Sinopec, cancellation or postponement of major projects, and value-eroding M&A. * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations

Disclaimer & Disclosures Issuer of report: The Hongkong and Shanghai Banking Corporation Limited This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it. View HSBC Global Research at: https://www.research.hsbc.com

EQUITIES  ENERGY EQUIPMENT 16 April 2016 abc

Financials & valuation

Financial statements Valuation data Year to 12/2015a 12/2016e 12/2017e 12/2018e Year to 12/2015a 12/2016e 12/2017e 12/2018e Profit & loss summary (CNYm) EV/sales 0.3 0.3 0.2 0.2 Revenue 45,498 41,947 44,424 48,723 EV/EBITDA 3.1 3.0 2.3 1.7 EBITDA 4,464 3,940 4,245 4,597 EV/IC 0.9 0.8 0.6 0.5 Depreciation & amortisation -619 -555 -527 -510 PE* 7.6 8.3 7.5 6.8 Operating profit/EBIT 3,845 3,385 3,718 4,088 PB 1.0 1.0 0.9 0.8 Net interest 375 386 356 377 FCF yield (%) 13.8 12.3 13.3 14.4 PBT 4,240 3,788 4,091 4,483 Dividend yield (%) 5.2 4.8 5.3 5.9 HSBC PBT 4,240 3,788 4,091 4,483 * Based on HSBC EPS (diluted) Taxation -922 -758 -765 -807 Net profit 3,318 3,030 3,326 3,676 HSBC net profit 3,318 3,030 3,326 3,676 Price relative Cash flow summary (CNYm) Cash flow from operations 5,793 3,860 3,662 3,853 11.80 11.80 Capex -443 -453 -476 -523 Cash flow from investment -2,602 -453 -476 -523 9.80 9.80 Dividends -1,381 -1,327 -1,212 -1,331 Change in net debt -2,224 -2,080 -1,974 -2,000 7.80 7.80 FCF equity 3,474 3,115 3,360 3,644 Balance sheet summary (CNYm) 5.80 5.80 Intangible fixed assets 327 252 199 168 Tangible fixed assets 7,476 7,450 7,451 7,495 3.80 3.80 Current assets 50,465 49,634 53,639 59,161 2014 2015 2016 2017 Cash & others 11,406 13,485 15,459 17,460 Sinopec Engineering Rel to HSCEI Total assets 58,404 57,472 61,425 66,960 Source: HSBC Operating liabilities 30,799 28,394 30,071 32,981 Note: Priced at close of 15 Apr 2016 Gross debt 0 0 0 0 Net debt -11,406 -13,485 -15,459 -17,460 Shareholders' funds 24,639 26,342 28,456 30,801 Invested capital 16,064 15,456 15,758 16,383

Ratio, growth and per share analysis Year to 12/2015a 12/2016e 12/2017e 12/2018e Y-o-y % change Revenue -7.8 -7.8 5.9 9.7 EBITDA -3.9 -11.8 7.8 8.3 Operating profit -4.8 -12.0 9.9 9.9 PBT -6.8 -10.7 8.0 9.6 HSBC EPS -4.9 -8.7 9.8 10.5 Ratios (%) Revenue/IC (x) 2.8 2.7 2.8 3.0 ROIC 18.5 17.2 19.4 20.9 ROE 14.0 11.9 12.1 12.4 ROA 6.1 5.4 5.7 5.8 EBITDA margin 9.8 9.4 9.6 9.4 Operating profit margin 8.5 8.1 8.4 8.4 EBITDA/net interest (x) Net debt/equity -46.3 -51.2 -54.3 -56.7 Net debt/EBITDA (x) -2.6 -3.4 -3.6 -3.8 CF from operations/net debt Per share data (CNY) EPS reported (diluted) 0.75 0.68 0.75 0.83 HSBC EPS (diluted) 0.75 0.68 0.75 0.83 DPS 0.30 0.27 0.30 0.33 Book value 5.56 5.95 6.43 6.96

In this document HSBC may comment on the potential economic impact dependent on the outcome of the UK Referendum. HSBC is not taking a political position and this document and the information contained herein are not intended to promote or procure, or otherwise be in connection with promoting or procuring, a particular outcome in relation to the question asked in the UK Referendum.

2 EQUITIES  ENERGY EQUIPMENT 16 April 2016 abc

Global oil engineering universe – change in share prices (15 April 2016 vs. the beginning of 2015) %

60% 40% 32% 27% 25% 40% 25% 16% 12% 6% 20% 5% 2% 0% -20% -2% -40% -4% -11% -11% -12% -12% -12% -13% -15% -21%

-60% -23% -27% -29% -34% -36% -36%

-80% -43% -46% -67% KBR SEG Fluor JGC CTCI Brent CNCEC COOEC Chiyoda Petrofac Wison Eng Wison Jacobs Eng KEPCO Eng SNC-Lavalin Wood Group Wood Hyundai Dev Hyundai E&C Samsung Eng Samsung C&T WorleyParsons East China Eng GS Eng & Cons & Eng GS Daelim Industrial KEPCO PlantS&E Doosan HeavyI&C Tecnicas Reunidas

Source: Bloomberg, HSBC

2016 and beyond

Sinopec remains a reliable supporter At Sinopec’s (386 HK, current price HKD5.32, Hold, TP HKD5.05; 600028 CH, current price RMB5.02, Reduce, TP RMB4.50) 2015 Annual Result Analysts’ Briefing, the chairman and management team identified a few large projects in which the company intend to invest.

 Domestic natural gas-based ethylene cracker: Sinopec has an aggressive target to grow domestic gas production from 21bcm in 2015 to 40bcm in 2020, with a CAGR of 14%. However, given the slowdown of gas demand growth in China, Sinopec believes a natural gas cracker is a good way to utilise the abundant natural gas resources in Sichuan province and the economic return of such a project will be better than selling the gas in Sichuan region, where citygate price for industrial users is RMB0.5/cm or 24% lower than that in Shanghai.

 Domestic refining and industrial clusters: Sinopec targets to build large scale refining and petrochemical production bases in Yangtze River Delta, Pearl River Delta and Bohai Rim regions, and these projects should help it increase production of fine chemicals and increase product competitiveness.

 In the overseas markets, Sinopec plans to invest in new refining and petrochemical projects in the “One Belt One Road” countries through joint venturing.

Short-term impact from Sinopec downstream capex cut quite limited Sinopec plans to cut its 2016 capex for refining/chemical segments by 7%, vs. a total capex cut of 11%. Although Sinopec’s capex cut has negative implications for SEG’s Sinopec-related revenue, SEG is also gaining market share within Sinopec’s EPC jobs. We believe there’s still room for SEG to get more out of Sinopec. Historically, SEG built refineries and petrochemical plants for Sinopec and is mostly exposed to Sinopec’s downstream capex. Since 2013, SEG has been appointed as the main EPC contractor for three LNG receiving terminal projects for Sinopec and thus is exposed to a large share of the upstream capex.

During 2013-15, SEG derived 40% of new contracts and 38-44% of revenues from Sinopec.

3 EQUITIES  ENERGY EQUIPMENT 16 April 2016 abc

Sinopec capex by segment, y-o-y change (RMBbn)

40

20 25 29 20 17 0 4 8 -1 1 -20 -12 -12

-40 -42 -60 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e

E&P Refining + Chemicals Marketing Others Sinopec Capex y-o-y changes (RMBbn)

Source: Sinopec reports, HSBC

SEG revenue from Sinopec vs. Sinopec Sinopec capex y-o-y change (%) refining + petrochemical capex

60 40%

50 30% 20% 40 10% 30 0% 2006 2008 2010 2012 2014 2016e 20 -10%

10 -20% -30% 0 2010 2011 2012 2013 2014 2015 -40%

SEG revenue from Sinopec Sinopec refining+chemical capex Sinopec refining+chemical capex Sinopec total capex Source: Sinopec and SEG reports, HSBC Source: Sinopec reports, HSBC

China fuel upgrades – China VI upgrade would unleash more opportunities Investment to upgrade refineries to produce China V standard fuel is coming to an end as China will roll out China V standard gasoline and vehicle-use diesel nationwide in early 2017. China may soon announce standard for China VI fuel and SEG may soon see a surge in contracts related to further refinery upgrades from Sinopec and other refiners. SEG is likely to be the biggest beneficiary amongst China’s oil engineering companies given its solid relationship with Sinopec and its rich execution experiences.

 In 1Q16, SEG signed an RMB180mn worth of EPC contract to upgrade Sinopec Tianjin refinery to produce China VI standard gasoline.

 Sinopec Shanghai Petrochemical (338 HK, Buy, TP HKD4.7, CP HKD3.74; 600688 CH, Reduce, TP RMB4.2, CP RMB7.42), a leading refiner under Sinopec, plans to invest RMB200mn in 2016 to upgrade a small refining unit to produce China VI standard fuel. We believe the project will be done by SEG if it goes ahead.

According to National Energy Administration’s estimate, China would invest a total of RMB200bn in refinery upgrade over 2014-17, of which 20-30% would be bore by refiners and the rest would be paid by the government and the consumers. Since 2013, NDRC engineered three measures to help refiners gather funds for quality upgrading projects.

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 NDRC allows refiners to sell China IV standard gasoline/diesel with a premium of RMB290/370/ton than China III fuel, and to sell China V standard gasoline/diesel with a premium of RMB170/160/ton than China IV fuel.

 Since Oct 2014, NDRC raised fuel consumption tax by three times. As a result, fuel consumption tax now accounts for c.45% of retail fuel price. NDRC guides that the incremental fuel consumption tax will be used in environmental protection projects.

 On 13 Jan 2016, NDRC announced that when crude oil prices are below USD40/b, it will not allow further cut in oil product prices, and the extra refining gain for the refiners should be used in environmental protection and refinery upgrading projects.

Sulphur content of gasoline and diesel due Fuel consumption tax in China (RMB/ton) to China’s fuel standard upgrade (mmg/g of fuel)

2500 2500

2000 2000

1500 1500

1000 1000

500 500 0 0

2000 2002 2004 2006 2008 2010 2012 2014 2016 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-1 Gasoline Diesel Gasoline Diesel

Source: CNPC Research Source: NDRC announcements

Chinese teapot refineries upgrading and expansion projects – there are opportunities, but SEG could be more aggressive SEG is engaging with non-oil major clients, such as the teapot refineries, for refinery upgrading projects, but they may not be able to bid as aggressively as other domestic peers as teapots are considered as competitors for SEG’s sister company Sinopec. Those teapots recently obtained crude import quota have generally witnessed profitability and capacity utilisation improvement. At end-1Q16, 12 teapots have obtained crude import rights and another 11 are waiting for NDRC approvals. To qualify for such quota, they all need to comply with China’s oil product quality controls, ie, they will be able to produce China V standard gasoline and diesel (vehicle use) by end-2016 and will upgrade to produce China VI fuels upon government requests. Based on CNPC’s research, as at end-2015, only 35-45% of teapot refineries can produce China V gasoline, and 25-35% can produce China V diesel.

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Teapot refineries obtained or in the process of obtaining crude import quota Approval Plant name Location Crude Refining Refining Deadline for date/Application import capacity - capacity - China V status quota retained closed upgrade (mtpa) (mtpa) 1 27-May-15 Shandong Dongming Shandong 7.5 7.5 (6.0) end-2015 2 29-Jun-15 Panjin Northern Asphalt Liaoning 7.0 7.0 (6.0) end-2015 3 14-Jul-15 Lijin Petrochemical Shandong 3.5 3.5 (2.5) end-2015 4 14-Jul-15 Kenli Petrochemical Shandong 2.5 3.0 (2.1) end-2015 5 20-Jul-15 Sinochem Hongrun Shandong 5.3 5.7 (3.3) end-2015 6 29-Jul-15 Yatong Petrochemical Shandong 3.4 3.5 (2.3) Done 7 3-Aug-15 Baota Petrochemical Ningxia 6.2 7.5 (1.7) end-2015 8 22-Oct-15 Jingbo Petrochemical Shandong 3.3 3.5 (2.3) end-2015 9 22-Oct-15 Luqing Petrochemical Shandong 2.6 3.0 (2.2) end-2015 10 22-Oct-15 Tianhong Chemical Shandong 4.4 5.0 (3.4) end-2015 11 22-Oct-15 Huifeng Petrochemical Shandong 4.2 5.8 (1.8) end-2015 12 11-Jan-16 Dongying Qirun Chemical Shandong 2.2 2.2 (1.9) end-2015 1 Public Review Haiyou Petrochemical Shandong 3.20 3.50 (2.60) end-2015 2 Public Review Shaanxi Yanchang Shaanxi 3.60 20.40 (3.00) Done 3 Waiting for approval Hengyuan Petrochemical Shandong 3.72 3.80 (2.80) 4 Waiting for approval Wuli Xinyue Shandong 3.20 3.20 (2.90) 5 Waiting for approval Qingyuan Group Shandong 4.62 5.20 (3.65) Done 6 Waiting for approval Fengli Petrochemical Henan 3.40 3.40 (0.40) 7 Waiting for approval Zhonghai Chemical Corp. Shandong 1.97 2.30 (1.57) 8 Waiting for approval Shenchi Chemical Co,. Ltd Shandong 2.52 2.60 (2.10) 9 Waiting for approval Rizhao Lan Bridge PetroChemical Shandong 2.40 3.50 (0.33) 10 Waiting for approval Jincheng Petrochemical Shandong 4.56 5.90 (3.80) 11 Waiting for approval Hebei Xinhai Chemical Group Co. Ltd. Hebei 5.40 6.00 (5.40) Total 90.6 117.0 (64.0) Source: NDRC, HSBC

China teapot unit profit/(loss)* (RMB/ton, LHS) and utilization rate (%, RHS)

200 60% - 50% (200) 40% (400) 30% (600) 20% (800) 10% (1,000) 0% May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16

Implied gross profit (loss) for processing M100 Fuel Oil (RMB/ton) Operation rate of Shandong Local refineries (%)

Source: China OGP, HBCS. *Implied gross profit (loss) for processing M100 Fuel Oil

China strategic reserve (SPR) capacity expansion China is taking advantage of low oil prices to build strategic reserves and thus we may see new reserve facilities being built in the coming years. SEG said SPR-related projects would become its important source of new contract in 2016.

SEG is the main contractor for almost all of the eight SPR tank farms already in use. They have a total capacity of 28.6mn cm. We believe during 13th Five-Year-Plan period (2016-20), China will complete all the SPR projects within the SPR Phase II National Target, and by then it will increase SPR capacity to 44.4mn cm. It may further increase the total SPR capacity to 81.3mn cm after it completed Phase III National SPR Target.

In 1Q16, SEG obtained an EPC contract worth of RMB1.1bn to build a 1.6 mn cm commercial crude reserve tank farm projects for Sinopec in Dongjiakou, Shandong province.

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China SPR capacity completion schedule Capacity (mn cm) Capacity (mb) Net import cover Construction (days) complete schedule SPR Phase I 16.4 103 15 end-2008 SPR Phase II - filled 12.2 77 11 2014 SPR Phase II - under construction 15.8 99 15 by 2020 SPR Phase III - planned 36.9 232 35 After 2020 Total completed 28.6 180 Total 81.3 511 Source: NDRC and media reports

Coal chemicals – low oil prices suppresses new investments

Based on the conversations with coal chemical project owners, SEG believes the market for coal chemical engineering may come back only when international oil prices rebound back to USD55-60/b.

China’s two large coal companies with significant exposure in coal chemicals, ie, China Coal (1898 HK, Reduce, HKD2.08; 601898 CH, Reduce RMB1.82) and China Shenhua Energy (1088 HK, Hold, HKD13.52; 601088 CH, Hold RMB11.96) both see the unit profitability of the coal chemical segment deteriorated significantly in 2015, but are still contributing positively to the profitability. Both companies indicated at their 2015 annual result analysts’ briefing meetings that they started to see an oversupply trend for coal-to-olefins (polyethylene and polypropylene) projects and they would consider extending the value chain of derivative products if they are investing more in new coal chemical projects.

In the soon-to-be released Coal Chemical 13th-Five-Year Development Guidance drafted by China Petroleum and Chemical Industry Association (CPCIA), China still set aggressive targets for coal chemical sub segments (see the below chart). CPCIA is a key contributor in drafting the Five-Year-Plan for the chemical sector (China Chemical Industry News, 12 April 2016). We doubt the target could be achieved given the subdued investment going in to the sector after the oil price slump.

China Shenhua PE/PP unit margin China Coal segment profit before tax (RMB/ton) (RMBmn) 3,500 10,000 3,000 5,000 2,500

2,000 0

1,500 -5,000

1,000 -10,000 2013 2014 2015 500 Coal Coal chemical 2012 2013 2014 2015 1H14 2H14 1H15 2H15 Machinery Others Polyethylene Polypropylene Non-operating Elimination Total

Source: Company reports, HSBC Source: Company reports, HSBC

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Coal chemical sub-segment production capacity target by 2020

25.0 20.0 20.0 16.0 15.0 12.0

10.0 7.8 7.0

5.0 3.1 1.6 1.3 1.0 - Coal-to-liquid (mtpa) Coal/Methanol-to- Coal-to-gas (bcm) Coal-to-ethylene glycol Coal-to-aromatics olefin (mtpa) (mtpa) (mtpa) 2015 2020 target

Source: Media reports, HSBC

Iran – a prominent market; SEG has established track record and access to funding

Post the lifting of sanctions on Iran, SEG has already sent a team to evaluate the market opportunities regarding engineering works for refineries, petrochemical plants, natural gas crackers and transmission pipelines, fertilizer plants, etc. SEG believes it could easily stand out among other Asian oil engineering competitors because 1) they have a solid relationship with National Iranian Oil Company and established track record through two large-scale projects signed in 2006 in Iran; 2) they have cheap funding from China’s policy banks that supports engineering services exporting to “One Road One Belt” countries, such as Iran. However, we believe SEG will be cautious evaluating the potential contracts, given the potential legal, regulatory and funding issues. During 2010-12, SEG generated on average 4% of their revenue from the two Iranian refinery projects signed in 2006.

 In July 2006, SEG, as a member of a consortium, entered into an EPC contract with an Iranian company to upgrade and expand a refinery in Iran

 In December 2006, SEG, as a member of a consortium, entered into a contract with an Iranian company to provide technical services for a gasoline production plant

We believe oil infrastructure investment will be a major focus for Iran as years of US and UN sanctions led to a lack of investment. The oil refining industry in Iran, based heavily on outdated technology, is expected to undergo a technology upgrade. Spain’s foreign minister revealed Spain and Iran are in talks over the possibility of constructing an Iranian-owned at the southern port city of Algeciras. This project may involve Spanish construction firms. (22 Jan 2016, ICIS) Spanish engineering company Tecnicas Reunidas and SEG are in the same consortium that won the EPC contract to build the Al-Zour refinery for Kuwait National Petroleum Company. Indian companies may consider setting up fertilizer plants in Iran (23 Sept 2015, The Times of India).

In addition, Iran had spoken of its interest in buying or investing in overseas oil refineries as a long-term strategy to secure a buyer for its crude oil. Iran spoke specifically of constructing an oil refinery in Spain (Wall Street Journal, 10 Jan 2016) and Iran may also invest to build oil refinery and oil storage tanks projects in Indonesia (Katadata News, 25 Feb 2016).

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SEG revenue from Iran projects (RMBmn, %)

2,000 60%

1,500 40% 1,000 20% 500

0 0% 2010 2011 2012 Iran Share of overseas revenue Share of total revenue Source: Company reports, HSBC

Backlog – chances for more project postponement is quite low Two major coal chemical projects got postponed, but we think chances for more project postponement and cancellation is limited. Sinopec-invested Zhong’an and Qinghai Damei coal chemical projects have been postponed upon project owners’ requests. The backlog related to these two projects is RMB12.1bn, or 11% of total and 34% of coal-to-chemical backlog. Even if we take these two projects as cancelled projects, the backlog would still be RMB96bn, or 2.1x of 2015 revenues.

Cash utilization – focus on M&A, share repurchase and increasing dividend pay-out As at end-2015, SEG was hoarding RMB24.3bn of cash, loans, and deposits on hand (RMB11.4bn cash, RMB11.1bn loans to Sinopec Group, and RMB1.8bn in time deposits), accounting for 42% of its total assets. We estimate this cash earns 4% interest at best and believe there are better ways in which SEG could utilize it.

M&A sounds like SEG management’s most preferred way to use cash. SEG stated that it was in advanced talks to acquire two companies in 2015, but finally dropped the deals because of concerns on risks. Given SEG’s desire to expand into the sophisticated European and North American markets as well as the depressed valuation of some overseas engineering companies, we believe SEG may focus on the Western engineering companies who have local knowledge (legal, taxation, labour, etc) and track record to work in developed market.

In addition to M&A, SEG management said it may use the cash to increase shareholder returns, ie, increase dividend payout or repurchase shares.

Cost cutting becomes a key target Like other oil engineering and oilfield services companies who are seeing top-line growth pressure, SEG is also targeting to cut costs to maintain margins flat. Effective control on staff costs and subcontracting costs, which account for more than 2/3 of total COGs, helped GPM to increase from 12.7% in 2014 to 13.5% in 2015. SEG does not give a cost cutting target, but said cost control will be the top 5 priorities in 2016. However, we do see difficulties to reduce admin costs due to expansion into global markets. In addition, SEG would continue to spend aggressively in R&D so as to keep a leading edge among peers.

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13th Five-Year-Plan on capacity expansion

In the recently published 13th-Five-Year Development Guidance drafted by CPCIA, it sets the key targets for the refining and petrochemical sector in the coming five years, including: 1) optimizing plant locations and feedstock; 2) higher proportion of new material and fine chemicals within total production; 3) significant reduction in energy consumption and waste discharge per unit production; 4) effective control to improve work safety (China Chemical Industry News, 12 April 2016).

We believe all of these could mean potential new contracts for SEG, ie, 1) relocation and rebuild of old refinery and chemical plants; 2) plant reconfiguration for feedstock diversification and flexibility; 3) new capacities to produce high value-added products and 4) environmental upgrades. In addition, tightened control on work safety, waste discharge and higher requirement on technology could help squeeze out the small engineering companies.

Despite China’s continued stress China’s refinery overcapacity, it still left ample room to grow refining capacity from 710mtpa in 2015 to 850 by 2020, implying a CAGR of 3.7%.

However, China does intend to reduce the proportion of small and inefficient capacities. On 12 April 2016, NDRC announced a trial programme in Shanghai, Tianjin, Guangdong and Fujian through a “negative list” that bans investment into new small-scale, low-tech, low-value-added or highly- polluting refining capacities, such as

 CDUs of less than 10m mt/yr  Catalytic crackers less than 1.5m mt/yr  Continuous catalytic reforming units less than 1m mt/yr  Hydrocracking units less than 1.5m mt/yr  Naphtha crackers to produce ethylene of less than 800,000 mt/yr

1Q16 operational updates

1Q16 new contract: RMB4.4bn, only 9% of its 2016FY guidance of RMB46.5bn, is 47% lower y-o-y. SEG signed no contracts in overseas markets and almost zero new contracts on coal chemical projects. We are not particularly concerned about the 1Q16 new order weakness and we continue to have confidence for SEG to meet their 2016 new contract target. SEG has demonstrated good track record of delivering on its new contract guidance in the past two years, only missing the target by 5%. This is extremely difficult considering the volatility in the market environment.

Representative new contracts in 1Q16 include:

 an EPC contract for Sinopec’s commercial crude oil reserve tank project in Dongjiakou, Qingdao; contract value RMB1.1bn

 an EPC contract for Sinopec Tianjin refinery upgrade project; contract value RMB523mn  an EPC contract for the cracking furnace project with China and South Korea Petrochemical Co.; contract value RMB180mn  an EPC contract for the coal transportation and preparation unit for CNOOC’s Huizhou refinery; contract value RMB175mn

1Q16 revenues: RMB7.7bn, 18% of HSBCe 2016 revenue of RMB42bn, is flat y-o-y. Revenue is calculated based on new contract and backlog changes. 1Q is normally the slowest season for domestic engineering companies due to low activity levels during the Chinese New Year. During 2014-15, 1Q revenues account for 17-19% of FY revenues.

10 EQUITIES  ENERGY EQUIPMENT 16 April 2016 abc

End-1Q16 backlog: RMB108bn, or 2.4x of 2015 revenue, is down 3% from end-2015 level. The backlog includes the two postponed coal chemical projects, ie, the Sinopec-invested Zhong’an project and Qinghai Damei project. Backlog related to these two projects is RMB12.1bn, or 11% of total and 34% of coal-to-chemical backlog. Even if we take these two projects as cancelled projects, the backlog would still be RMB96bn, or 2.1x of 2015 revenue.

Please refer to pages 13-16 for more details on SEG’s new contract, backlog and revenue by segment, industry, geography and customer base.

Earnings revisions

Revenue: We maintain our revenue forecast largely unchanged, except for slightly reducing 2017- 18e revenues by 2-3% as we believe a higher proportion of the long-duration overseas EPC projects in the backlog will lead to slower revenue recognition.

EBIT margin: We slightly reduce 2016e EBIT margin by 20ppt as we see limited contribution from cost control measures. We also increase 2017-18e EBIT margin by 10-30ppt, as management guided GPM for the Al-Zour refinery project is better than we expected.

Income tax rate: We also lower the income tax rate slightly, as the company is aggressively increasing R&D spend to make more subsidiaries qualify to enjoy the preferential income tax rate for the high-tech companies.

As a result, we lower net income for 2016-18e by 1-2%. We are in line with consensus for 2016e earnings forecast, but are below 5% and 17% above for 2017-18e earnings.

Sinopec Engineering earnings revision table (RMBmn, unless otherwise stated) ______New ______Old ______Chg % ______2013 2014 2015 2016e 2017e 2018e 2015 2016e 2017e 2018e 2015e 2016e 2017e 2018e Rev - ECL 4,354 3,645 2,626 2,363 2,599 2,729 2,626 2,363 2,481 2,581 0.0% 0.0% 4.8% 5.8% Rev - EPC 23,506 30,132 27,839 25,612 26,892 29,581 27,839 25,612 28,685 31,267 0.0% 0.0% -6.3% -5.4% Rev - Construction 15,215 15,325 14,914 13,870 14,841 16,325 14,914 13,422 14,362 15,798 0.0% 3.3% 3.3% 3.3% Rev - Manufacturing 497 244 120 102 92 87 120 102 92 87 0.0% 0.0% 0.0% 0.0% Rev - Total 43,572 49,346 45,498 41,947 44,424 48,723 45,498 41,499 45,620 49,733 0.0% 1.1% -2.6% -2.0% EBIT - ECL 1,391 722 237 186 178 189 473 413 436 450 -49.9% -55.0% -59.1% -58.0% EBIT - EPC 2,537 2,776 3,015 2,716 2,970 3,276 2,673 2,459 2,754 2,892 12.8% 10.5% 7.9% 13.3% EBIT - Construction 500 506 441 446 537 591 585 552 600 673 -24.5% -19.2% -10.5% -12.1% EBIT - Manufacturing (41) 0 76 36 33 31 12 4 3 3 554.1% 894.3% 894.3% 894.3% EBIT - Total 4,413 4,039 3,845 3,385 3,718 4,088 3,741 3,428 3,793 4,018 2.8% -1.3% -2.0% 1.7% EBIT margin – ECL 32.0% 19.8% 9.0% 7.9% 6.9% 6.9% 18.0% 17.5% 17.6% 17.4% -9.0% -9.6% -10.7% -10.5% EBIT margin – EPC 10.8% 9.2% 10.8% 10.6% 11.0% 11.1% 9.6% 9.6% 9.6% 9.2% 1.2% 1.0% 1.4% 1.8% EBIT margin - Construction 3.3% 3.3% 3.0% 3.2% 3.6% 3.6% 3.9% 4.1% 4.2% 4.3% -1.0% -0.9% -0.6% -0.6% EBIT margin – Manufacturing -8.2% 0.1% 62.9% 35.6% 35.6% 35.6% 9.6% 3.6% 3.6% 3.6% 53.3% 32.0% 32.0% 32.0% EBIT margin - Total 10.1% 8.2% 8.5% 8.1% 8.4% 8.4% 8.2% 8.3% 8.3% 8.1% 0.2% -0.2% 0.1% 0.3% Net income 3,657 3,490 3,318 3,030 3,326 3,676 3,328 3,091 3,389 3,716 -0.3% -2.0% -1.9% -1.1% EPS (RMB) 0.93 0.79 0.75 0.68 0.75 0.83 0.75 0.70 0.77 0.84 -0.3% -2.0% -1.9% -1.1% DPS (RMB) 0.32 0.31 0.30 0.27 0.30 0.33 0.30 0.28 0.31 0.34 -1.2% -2.0% -1.9% -1.1% BVPS (RMB) 4.74 5.16 5.56 5.95 6.43 6.96 5.60 6.00 6.49 7.02 Payout (%) -39.2% -39.6% -40.0% -40.0% -40.0% -40.0% -40.0% -40.0% -40.0% -40.0% Yield 6.0% 5.8% 5.3% 4.6% 5.0% 5.5% 5.7% 5.0% 5.5% 6.0% Current Price (HKD) 6.78 6.35 HSBC TP (HKD) 7.80 7.6 Upside/(downside) (%) 15% 20% Current PE (x) 5.8 6.8 7.5 8.8 8.0 7.0 8.0 7.3 Current PB (x) 1.1 1.0 1.0 1.0 0.9 0.9 0.9 0.9 Target PE (x) 6.6 7.9 8.7 10.1 9.2 8.4 9.6 8.8 Target PB (x) 1.3 1.2 1.2 1.2 1.1 1.1 1.1 1.0 Consensus TP (HKD) 7.54 8.16 Consensus target PE (x) 7.6 8.2 9.5 9.3 9.0 9.6 9.7 Consensus EPS (RMB) 0.93 0.79 0.75 0.69 0.72 0.71 0.74 0.74 0.74 0.86 HSBC vs. Consensus (%) 0.0% 0.0% 0.0% -0.8% 4.9% 17.1% 1.3% -6.0% 3.2% -2.4% Source: Company reports, Bloomberg, HSBC estimates

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Valuation and risks

Maintain Buy rating and lift fair value TP 3% to HKD7.8 (from HKD7.6). Our TP is derived by applying a 10.1x (was 9.6x) PE to our 2016e EPS of RMB0.68 (was RMB0.7), which is a 1x PEG ratio on 2016-18e net income CAGR of 10.1% (was 9.6%). We use HSBC FX team’s 2016 RMB/HKD exchange rate forecast of 1.13. Our TP implies a 2016e PB of 1.2x, below SEG’s average forward PB of 1.3x since listing in mid-2013.

Downside risks include: Extended period of low oil prices, higher-than-expected downstream capex cuts by major customers such as Sinopec, cancellation or postponement of major projects, and value-eroding M&A.

SEG valuation methodology – 1x PEG ratio on 2016e EPS 2013 2014 2015 2016e 2017e2018e Diluted EPS 0.93 0.79 0.75 0.68 0.75 0.83 Net income 3,657 3,490 3,318 3,030 3,326 3,676 Net income y-o-y growth - % -4.6% -4.9% -8.7% 9.8% 10.5% Net income 2YR CAGR - % -4.7% -6.8% 0.1% 10.1% Target PE ratio (x) - 1x PEG 10.1x Target Price (RMB/sh) 6.94 Target Price (HKD/sh) 7.80 Current Price (HKD/sh) 6.78 DPS 0.32 0.31 0.30 0.27 0.30 0.33 Dividend yield 6.0% 5.8% 5.3% 4.6% 5.0% 5.5% Upside/(downside) 15.0% TP implied P/E 7.4x 8.8x 9.3x 10.1x 9.2x 8.4x TP implied P/B 1.5x 1.3x 1.2x 1.2x 1.1x 1.0x ROE % 17.4% 15.3% 14.0% 11.9% 12.1% 12.4% BVPS 4.74 5.16 5.56 5.95 6.43 6.96 Source: Company data, HSBC estimates, Bloomberg

Long-term PE band Long-term PB band

10x 2.0x SEG forward PE SEG forward PB

1.5x 8x Avg. 1.3x Avg. 7.3x 1.0x

6x 0.5x

4x 0.0x Jun-13 Jun-14 Jun-15 Jun-15 Jun-14 Jun-13 Mar-14 Mar-15 Mar-16 Mar-16 Mar-15 Mar-14 Sep-13 Dec-13 Sep-14 Dec-14 Sep-15 Dec-15 Sep-15 Dec-15 Sep-14 Dec-14 Sep-13 Dec-13

Source: Thomson Reuters Datastream, HSBC Source: Thomson Reuters Datastream, HSBC

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SEG revenue by segment, industry, geography and clients

SEG revenue by segment (RMBmn) SEG revenue by segment (%) 60,000 100% 49,346 50,000 45,498 33% 35% 31% 33% 43,572 80% 38% 36% 40% 46% 38,526 40,000 60% 29,89730,601 30,000 40% 55% 49% 52% 54% 61% 61% 52% 20,000 47% 20% 7,636 7,688 10,000 11% 11% 11% 10% 0% 7% 6% 8% 6% 0 2010 2011 2012 2013 2014 2015 1Q15 1Q16 2010 2011 2012 2013 2014 2015 1Q15 1Q16 ECL EPC Contracting Construction Equip Manuf ECL EPC Contracting Construction Equip Manuf

Source: Company reports, HSBC Source: Company reports, HSBC

SEG revenue by industry (RMBmn) SEG revenue by industry (%) 60,000 100% 49,346 15% 16% 13% 17% 18% 14% 17% 50,000 45,498 31% 43,572 80% 8% 13% 20% 38,526 30% 28% 40,000 5% 38% 39% 30,601 60% 37% 29,897 39% 30,000 28% 38% 40% 32% 33% 20,000 26% 34% 20% 36% 40% 33% 7,636 7,688 28% 22% 10,000 20% 17% 12% 0% 0 2010 2011 2012 2013 2014 2015 1Q15 1Q16 2010 2011 2012 2013 2014 2015 1Q15 1Q16 Oil refining New coal chemicals Other Oil refining Petrochemicals New coal chemicals Other

Source: Company reports, HSBC Source: Company reports, HSBC

SEG revenue by geography (%) SEG revenue by client (%) 100% 100% 10% 12% 14% 17% 16% 14% 20% 29% 34% 80% 80% 45% 50% 56% 54% 62% 61% 66% 60% 60% 88% 90% 40% 40% 86% 83% 84% 86% 80% 71% 66% 55% 50% 20% 38% 39% 44% 46% 20% 34% 0% 0% 2010 2011 2012 2013 2014 2015 1Q15 1Q16 2010 2011 2012 2013 2014 2015 1Q15 1Q16 Sinopec Group Non-Sinopec Group clients PRC Overseas

Source: Company reports, HSBC Source: Company reports, HSBC

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SEG new contract by segment, industry, geography and clients

SEG new contract by segment (RMBmn) SEG new contract by segment (%) 100,000 100% 19% 26% 30% 27% 33% 80,000 70,589 80% 39% 41% 39% 60,700 52,676 60,000 50,300 60% 41,213 40,000 29,645 73% 40% 66% 63% 67% 58% 53% 44% 50% 20,000 8,184 4,358 20% 0 14% 7% 8% 8% 7% 6% 9% 10% 2010 2011 2012 2013 2014 2015 1Q15 1Q16 0% 2010 2011 2012 2013 2014 2015 1Q15 1Q16 ECL EPC Contracting Construction Equip Manuf ECL EPC Contracting Construction Equip Manuf

Source: Company reports, HSBC Source: Company reports, HSBC

SEG new contract by industry (RMBmn) SEG new contract by industry (%) 100,000 100% 19% 80,000 70,589 80% 11% 60,700 21% 49% 38% 2% 60,000 50,300 52,676 60% 14% 36% 48% 19% 39% 40,000 40% 29,645 39% 20% 21%

34% 29% 20,000 8,184 20% 36% 4,358 26% 29% 27% 25% 16% 10% 0 0% 8% 2011 2012 2013 2014 2015 1Q15 1Q16 2010 2011 2012 2013 2014 2015 1Q15 1Q16

Oil refining Petrochemicals New coal chemicals Other Oil refining Petrochemicals New coal chemicals Other

Source: Company reports, HSBC Source: Company reports, HSBC

SEG new contract by geography (%) SEG new contract by client (%) 100% 100% 8% 0% 11% 16% 19% 27% 27% 80% 36% 40% 80% 60% 60% 60% 67% 60% 60% 92% 100% 89% 84% 81% 40% 73% 40% 73% 64% 60% 20% 20% 40% 40% 40% 33% 0% 0% 2010 2011 2012 2013 2014 2015 1Q15 1Q16 2010 2011 2012 2013 2014 2015 1Q15 1Q16 PRC Overseas Sinopec Group Non-Sinopec Group clients

Source: Company reports, HSBC Source: Company reports, HSBC

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SEG backlog by segment, industry, geography and clients

SEG backlog by segment (RMBmn) SEG backlog by segment (%) 120,000 100% 13% 15% 13% 12% 27% 21% 21% 100,000 92,568 80% 103,922 103,922 111,100 107,770

80,000 74,435 65,553 65,553 60% 60,000 54,735 80% 79% 81% 82% 40% 65% 72% 71% 40,000 20% 20,000 0% 8% 7% 8% 7% 6% 6% 6% 0 2010 2011 2012 2013 2014 2015 1Q16 2010 2011 2012 2013 2014 2015 1Q16 ECL EPC Contracting Construction Equip Manuf ECL EPC Contracting Construction Equip Manuf

Source: Company reports, HSBC Source: Company reports, HSBC

SEG backlog by industry (RMBmn) SEG backlog by industry (%) 100% 120,000 16% 92,568 92,568 80% 9% 100,000 103,922 111,100 107,770 20% 42% 45%

74,435 74,435 34% 33% 80,000 65,553 60% 39%

54,735 54,735 46% 31% 60,000 40% 20% 20% 29% 23% 40,000 20% 20,000 38% 37% 30% 30% 29% 20% 26% 0 0% 2010 2011 2012 2013 2014 2015 1Q16 2010 2011 2012 2013 2014 2015 1Q16

Oil refining Petrochemicals Coal chemicals Oil refining Petrochemicals Coal chemicals Other Other Backlog

Source: Company reports, HSBC Source: Company reports, HSBC

SEG backlog by geography (%) SEG backlog by client (%) 100% 100% 24% 24% 30% 27% 26% 33% 32% 80% 80% 61% 60% 62% 61% 60% 60%

40% 76% 76% 70% 73% 74% 67% 68% 40%

20% 20% 39% 40% 38% 39% 0% 2010 2011 2012 2013 2014 2015 1Q16 0% 2010 2011 2012 2013 2014 2015 1Q16 % of PRC Overseas Sinopec Group Non-Sinopec Group clients

Source: Company reports, HSBC Source: Company reports, HSBC

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Disclosure appendix

Analyst Certification The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Tingting Si, Thomas C. Hilboldt and Wayne Wang Important disclosures Equities: Stock ratings and basis for financial analysis HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations and that investors utilise various disciplines and investment horizons when making investment decisions. Ratings should not be used or relied on in isolation as investment advice. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations and therefore investors should carefully read the definitions of the ratings used in each research report. Further, investors should carefully read the entire research report and not infer its contents from the rating because research reports contain more complete information concerning the analysts' views and the basis for the rating. From 23rd March 2015 HSBC has assigned ratings on the following basis: The target price is based on the analyst’s assessment of the stock’s actual current value, although we expect it to take six to 12 months for the market price to reflect this. When the target price is more than 20% above the current share price, the stock will be classified as a Buy; when it is between 5% and 20% above the current share price, the stock may be classified as a Buy or a Hold; when it is between 5% below and 5% above the current share price, the stock will be classified as a Hold; when it is between 5% and 20% below the current share price, the stock may be classified as a Hold or a Reduce; and when it is more than 20% below the current share price, the stock will be classified as a Reduce. Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation or resumption of coverage, change in target price or estimates). Upside/Downside is the percentage difference between the target price and the share price. Prior to this date, HSBC’s rating structure was applied on the following basis: For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropriate, regional market established by our strategy team. The target price for a stock represented the value the analyst expected the stock to reach over our performance horizon. The performance horizon was 12 months. For a stock to be classified as Overweight, the potential return, which equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated, had to exceed the required return by at least 5 percentage points over the succeeding 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock was expected to underperform its required return by at least 5 percentage points over the succeeding 12 months (or 10 percentage points for a stock classified as Volatile*). Stocks between these bands were classified as Neutral. *A stock was classified as volatile if its historical volatility had exceeded 40%, if the stock had been listed for less than 12 months (unless it was in an industry or sector where volatility is low) or if the analyst expected significant volatility. However, stocks which we did not consider volatile may in fact also have behaved in such a way. Historical volatility was defined as the past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however, volatility had to move 2.5 percentage points past the 40% in either direction for a stock's status to change.

Rating distribution for long-term investment opportunities As of 15 April 2016, the distribution of all ratings published is as follows: Buy 46% (26% of these provided with Investment Banking Services) Hold 39% (26% of these provided with Investment Banking Services) Sell 15% (20% of these provided with Investment Banking Services)

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For the purposes of the distribution above the following mapping structure is used during the transition from the previous to current rating models: under our previous model, Overweight = Buy, Neutral = Hold and Underweight = Sell; under our current model Buy = Buy, Hold = Hold and Reduce = Sell. For rating definitions under both models, please see “Stock ratings and basis for financial analysis” above.

Share price and rating changes for long-term investment opportunities Sinopec Engineering (2386.HK) share price performance Rating & target price history HKD Vs HSBC rating history From To Date N/A Overweight (V) 25 June 2013 Overweight (V) Overweight 22 February 2015 14 Overweight Buy 24 March 2015 13 12 Target price Value Date 11 Price 1 13.60 25 June 2013 10 Price 2 14.00 06 February 2014 9 Price 3 13.50 17 March 2014 8 Price 4 8.20 22 February 2015 7 Price 5 8.00 30 March 2015 6 Price 6 8.90 16 April 2015 5 Price 7 7.60 23 February 2016 Source: HSBC Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16

Source: HSBC

HSBC & Analyst disclosures None of the below disclosures applies to any of the stocks featured in this report.

1 HSBC has managed or co-managed a public offering of securities for this company within the past 12 months. 2 HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months. 3 At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this company. 4 As of 31 March 2016 HSBC beneficially owned 1% or more of a class of common equity securities of this company. 5 As of 29 February 2016, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of investment banking services. 6 As of 29 February 2016, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-investment banking securities-related services. 7 As of 29 February 2016, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-securities services. 8 A covering analyst/s has received compensation from this company in the past 12 months. 9 A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as detailed below. 10 A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this company, as detailed below. 11 At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in securities in respect of this company

HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments, both equity and debt (including derivatives) of companies covered in HSBC Research on a principal or agency basis.

Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking, sales & trading, and principal trading revenues.

Whether, or in what time frame, an update of this analysis will be published is not determined in advance.

17 EQUITIES  ENERGY EQUIPMENT 16 April 2016 abc

Economic sanctions imposed by the EU and OFAC prohibit transacting or dealing in new debt or equity of Russian SSI entities. This report does not constitute advice in relation to any securities issued by Russian SSI entities on or after July 16 2014 and as such, this report should not be construed as an inducement to transact in any sanctioned securities.

For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research.

Additional disclosures 1 This report is dated as at 16 April 2016.

2 All market data included in this report are dated as at close 15 April 2016, unless otherwise indicated in the report.

3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.

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Disclaimer

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Global Natural Resources & Energy Research Team

Latam Asia Metals and Mining Luiz F Carvalho +55 11 3371 8178 Regional Head Utility & Alternative Energy EMEA [email protected] Evan Li +852 2996 6619 Emma Townshend +27 21 794 8345 [email protected] [email protected] Filipe M Gouveia +55 11 3847 5451 [email protected] Jigar Mistry, CFA +91 22 2268 1079 Derryn Maade +27 11 676 4519 [email protected] [email protected] Asia Head of Resources & Energy Research, Darpan Thakkar +91 22 6164 0695 North America & Latin America Asia-Pacific [email protected] James Steel +1 212 525 3117 Thomas C. Hilboldt, CFA +852 2822 2922 [email protected] [email protected] Summer Y Y Huang +852 2996 6976 [email protected] Botir Sharipov, CFA +1 212 525 5150 John Chung +8862 6631 2868 [email protected] [email protected] Yeon Lee +822 3706 8778 [email protected] Leonardo Shinohara +55 11 8747 5433 Tingting Si +852 2996 6590 [email protected] [email protected] Simon Fang +852 2914 9973 [email protected] Osmar Camilo +55 11 3847 9502 Dennis Yoo, CFA +852 2996 6917 [email protected] [email protected] Latin America Francisco Navarrete +55 11 2169 4612 Asia Shishir Singh +852 2822 4292 [email protected] Head of Resources & Energy Research, [email protected] Asia-Pacific Arthur Pereira +55 11 2169 4415 Thomas C. Hilboldt, CFA +852 2822 2922 Kumar Manish +91 22 2268 1238 [email protected] [email protected] [email protected] CEEMEA Chris Chen +852 2822 4277 Alok P Deshpande +91 22 2268 1245 Analyst [email protected] [email protected] Levent Bayar +90 212 376 46 17 [email protected] Jeff Yuan +852 3941 7010 Vivek Priyadarshi +91 22 3396 0694 [email protected] [email protected] Dmytro Konovalov +7 495 258 3152 [email protected] Brian Cho +822 3706 8750 Wayne Wang +852 2914 9935 [email protected] [email protected] Alternative Energy Sean McLoughlin +44 20 7991 3464 [email protected] Jigar Mistry, CFA +91 22 2268 1079 Chemicals [email protected] CEEMEA Evan Li +852 2996 6619 Rajesh V Lachhani +91 22 6164 0687 Yonah Weisz +972 3 710 1198 [email protected] [email protected] [email protected] Charanjit Singh +91 80 3001 3776 Kirtan Mehta, CFA +91 80 3001 3779 Sriharsha Pappu, CFA +971 4 423 6924 [email protected] [email protected] [email protected] Simon Fang +852 2914 9973 [email protected] Energy Nicholas Paton, CFA +971 4 423 6923 [email protected] Europe Specialist Sales Global Sector Head, Oil and Gas Asia James Lesser +44 20 7991 1382 Gordon Gray +44 20 7991 6787 Dennis Yoo, CFA +852 2996 6917 [email protected] [email protected] [email protected] Zara Nathan +44 20 7991 5761 Kim Fustier +44 20 3359 2136 Wayne Wang +852 2914 9935 [email protected] [email protected] [email protected] Thomas White +44 20 7991 5996 Christoffer Gundersen +44 20 7992 1728 Utilities [email protected] [email protected] Europe

CEEMEA Adam Dickens +44 20 7991 6798 Bülent Yurdagül +90 212 376 46 12 [email protected] [email protected] Verity Mitchell +44 20 7991 6840 Ildar Khaziev, CFA +7 495 645 4549 [email protected] [email protected] Pablo Cuadrado +34 91 456 62 40 [email protected]

Charanjit Singh +91 80 3001 3776 [email protected]