Disclosures&Disclaimer:ThisreportmustbereadwiththedisclosuresandtheanalystcertificationsintheDisclosureappendix,andwiththeDisclaimer,whichformspartofit.By:DunWang(S1700519060002),CoreyChan(S1700518100001),YiRu(S1700520120001)ChinaGreenHydrogenReadyforprimetimeGreenhydrogenistakingoffinChina,whichissettoleadtheworldinitsadoption,drivenbytighteremissionstandardsandfallingcostsWeshowwhychemicalandsteelproducersaresettobethebiggestcommercialusersofthiscleanfueloverthenextfiveyears……andhighlightothermajorimplicationssuchasabrighteroutlookforrenewablepowerandre-ratingopportunitiesalongthesupplychainSPOTLIGHTEnergyTransitionEquityResearchReportwww.research.hsbc.comMarch2022ChinaThematicresearch1EnergyTransition●EquitiesMarch2022PrimetimeforgreenhydrogenGreenhydrogenisonthecuspofbecomingfarmorewidelyadoptedinChinaasthecostscometumblingdown.It’sanenergysourcethatiscrucialtoachievingnetzeroemissions–itisproducedusingrenewableenergyandproducesnocarbonemissionswhenconsumed–butuptonowhasbeenprohibitivelyexpensive.Thatischangingassince2021,China’soilmajorsandleadingchemicalcompanieshavestartedusingthisfuelsourcetopowertheirplants,leadingtocostreductionsforthisemergingenergysource.Inthisreport,welookatapplicationswhicharemostcommerciallyviableinthenextfiveyears,namelygreenhydrogenbeingusedbychemicalandsteelproducersastheycanmakeitonsite,sothereisnoneedfortransportation.ButwealsolookatthewiderdevelopmentofgreenhydrogeninChinaanddetailanumberofmajorimplicationstoinvestors:Thecostofgreenhydrogenissettodecreaseby38%in2022-25e,drivenbythefallingcostsofelectrolysers,theequipmentwhichsplitswatertomakehydrogen,andsolarenergy.Wedetailthebeneficiariesallalongthegreenhydrogensupplychain.Whilerevenuemaynotbesignificantinthenexttwoyears,weseere-ratingopportunitiesahead.Greenhydrogenalsoimprovestheoutlookforrenewablepowerlikesolarandwind,asforthefirsttime,weseeacommercially-viablesolutiontopowergridinstabilityasstoringenergyintheformofhydrogenis5-15xcheaperthanlithiumbatteries.Weexpectaverageannualelectrolysersysteminstallationtobe20GWoverthenextfiveyearsinChina,comparedtoonly1-1.5GWin2022e,andequivalenttoRMB79bnofannualequipmentspending.Webelieveexponentialgrowthtohappenin2024-25e.WeseeChinaplayingakeyroleinglobalgreenhydrogendevelopment.Two-thirdsofelectrolysersin2022aresettobeinstalledinChina,perBNEFestimates.Weexplainwhyweprefergreenhydrogentocarboncapture,utilisationandstorage(CCUS),atechnologythatisbothcomplementaryandcompetingwithgreenhydrogen.Whyreadthisreport?GreenhydrogenistakingoffinChina,whichissettoleadtheworldinitsadoption,drivenbytighteremissionstandardsandfallingcostsWeshowwhychemicalandsteelproducersaresettobethebiggestcommercialusersofthiscleanfueloverthenextfiveyears……andhighlightothermajorimplicationssuchasabrighteroutlookforrenewablepowerandre-ratingopportunitiesalongthesupplychainDunWang(S1700519060002)Analyst,A-shareInfrastructure&RenewablesHSBCQianhaiSecuritiesLimiteddun.wang@hsbcqh.com.cn+862160813827Employedbyanon-USaffiliateofHSBCSecurities(USA)Inc,andisnotregistered/qualifiedpursuanttoFINRAregulationsEnergyTransition●EquitiesMarch20222Factsandfigures3Relatedresearch4Executivesummary5Greenhydrogenisenteringthe‘realapplication’stage5Stocks9ESGIntegration11Valuationandrisks16Virtuouscyclestarts17Greenhydrogen17PrefergreenhydrogentoCCUS26Wheredotheopportunitieslie?28Companysection30CNCEC(601117CH)31Longi(601012CH)37MCC(601618CH)41SinopecOilfieldEquipment(000852CH)44Disclosureappendix48Disclaimer53Contents3EnergyTransition●EquitiesMarch2022Factsandfiguresc69%ofglobalelectrolysers,usedtoproducehydrogen,aresettobeinstalledinChinain2022eRMB79bnaverageannualspendingonelectrolysersin2022-27eThereductioninthelevelisedcostofenergy(LCOE)forproducinggreenhydrogenwillbedrivenbyadeclineinsolarandelectrolysersystemcosts38%Howmuchgreenhydrogenproductioncosts(LCOE)inChinawilldeclinebyin2021-25e20%Steelmakingandpetrochemicalsector’sshareinChinatotalcarbonemissionin202014%Greenhydrogen’sshareofChina’speak-shavingcapabilityby2027e1.2%HowmuchgreenhydrogencouldreduceChina’stotalcarbonemissionsbyin2027e5-15xStoringelectricityintheformofhydrogen(withoutregeneration)is5-15xcheaperthanlithiumbatteryWeexpectgreenhydrogenwithstoragecapacitiescanhelpreducesolarandwindcurtailment(akawastedenergy)6-9xHowmuchChina’scarbontradingprice(Jan2022)islowerthanitsCCUScost7%Greenhydrogen’sshareofChina’stotalhydrogensupplyin2027eSource:BNEF,HSBCGlobalResearch,HSBCQianhaiSecuritiesestimatesEnergyTransition●EquitiesMarch20224RelatedresearchRecommendedreading...GlobalHydrogen-Whythejourneyfromgreytogreenistakingoff,30January2020GlobalHydrogen-2020saretheroaringdecadeofhydrogen,13January2021AsiaEnergy&Resources:ESGIntegrated-Onthefrontlineoftheenergytransition,1November2021CarbonCapture&Sequestration-Backinthedebate,butnosilverbullet,23March2021A-shareInfrastructureRenewables-Howtoplaytheenergystorageinvestmentupcycle?,2November2021ChinaEasing-TimeforaRMB2trntechandgreenstimuluspackage,17November2021CIMCEnricHoldings(3899HK)-Pendingbetterentrypoint,14February20225EnergyTransition●EquitiesMarch2022Greenhydrogenisenteringthe‘realapplication’stageWhynow?Hydrogenpromisestobeanewtypeoffuelthatcanburnwithoutemittinganygreenhousegases.Butuptonowitsproductionhasn’talwaysbeenasclean.Whilegreenhydrogen–whichmakeshydrogenby“cracking”waterusingrenewableenergyandthuscreatingzerocarbonemissions–hasbeenaroundfordecadesithasnotbeenmassivelyadoptedduetoitshighcosts.However,since2019,therisingemphasisondecarbonisationhasdrivenrenewedinterestincarbon-free‘green’hydrogenproducedusingelectricityfromrenewables.ByJanuary2021,therewereover51GWofelectrolysers-whichenabletheproductionofthiscleantypeofhydrogen-intheglobalpipeline,basedonannouncedprojects(pleaseseeGlobalHydrogen-2020saretheroaringdecadeofhydrogen,13January2021).ThereasonwefocusongreenhydrogennowisthatChinaisenteringthe‘realapplication’phase,asmoreleadingChinesechemicalproducers(e.g.Sinopecgroup,PetroChinaandBaofeng)startedtoinvestmoreinnewelectrolysercapacitylastyear.Inaddition,webelievethelaunchoftheChinaEmissionsTradingSchemeinJuly2021acceleratestheapplicationofgreenhydrogengiventhehighercarbonemissionexpensesofcoal-madehydrogen,acompetingalternative.Weseethepotentialforgreenhydrogentobeusedwidelyinthepetrochemicalandsteelproductionindustry,whichtogetheraccountedfor20%ofcarbondioxideemissionsin2020inChina,muchhigherthan7%fromgasolineanddieselvehicles(Exhibit1).WealsoexpectpotentialsupportfromtheRMB2trnstimuluspackageforgreenprojects(seeChinaEasing:TimeforaRMB2trntechandgreenstimuluspackage,17November2021).On23March2022,theNationalDevelopmentandReformCommission(NDRC)releasedHydrogendevelopmentplan2021-35onitswebsite.Hydrogenisdeclaredtobeakeycomponentofthecountry’sfuturenationalenergysystem.Webelievethepotentialformorepoliciestoberolledoutintheformoftaxbreaksorsubsidiescouldfurtheracceleratethegreenhydrogenindustry.AnotherstoryofChinesemanufacturingreducingcostsSolarequipmentmarketleaderssuchasLongiandSungrowpower,areforayingintothegreenhydrogenequipmentmarketbystartingtomakeelectrolysersforgreenhydrogenprojects.Webelievethisshouldalsobringaboutcostreductionsinequipmentastheindustryisonthecuspofmassmanufacturingelectrolysers.Wehencebelievewe’refirmlyonthecostreductionroadforgreenhydrogen,andthespeedislikelytoacceleratewhenthevirtuouscyclestarts:moreExecutivesummaryChinaisjoiningthemarchtowardswideruseofgreenhydrogenWeexpectcoststorapidlyfallandthesectortobere-rated,likewhathashappenedtoEVsandsolarGreenhydrogencouldbeanidealcandidatefortheultimatecleanenergysolutionasitperfectlymatchesupwithsolarandwinduseEnergyTransition●EquitiesMarch20226productionvolumeleadstolowercosts,andlowercostsinturnfacilitatemoreindustryapplications.Thisissimilartothesolarsectorin2010-21wheninstallationcostsdeclined83%andglobalinstallationincreasedbya24%CAGRfrom2010to2021.Givenc69%ofglobalelectrolyserswillbeinstalledinChinain2022(BNEFestimates),weexpectChinesemanufacturestoplayakeyroleinsupplyingthedomesticmarketandfacilitatingglobalelectrolyserdevelopment.Weexpectthelevelisedcostofenergy(LCOE)—ameasurethatremovestheimpactofdirectsubsidiesandincludesthecostsofconstruction,operationsandfinancingforanewplant—ofgreenhydrogentodeclineby38%fromcRMB24/kg(1200operatinghours)in2021toRMB15/kg(1200operatinghours)in2025e,orUSD2.5/kg.Thiswillallowgreenhydrogentobecheaperthanbluehydrogen(madefromnaturalgasorcoalwhilecapturingthecarbondioxideemitted)inregionsthathavegoodsunlightconditionsforthesolarpanelsneededforrenewableenergy(e.g.RMB12/kgcostforgreenhydrogenwhenthereare1,500effectiveannualoperatinghoursforsolar).ThiswillnotbethefinaldestinationforcostsasBloombergNEF(BNEF)estimatesthatrenewablehydrogencostsmayfalltoaslowasUSD1.4/kgby2030e.WebelievethatrobustgreenhydrogendemandcouldtranslateintoaverageannualequipmentspendingonelectrolysersystemsofRMB79bnin2022-27einChina.Exhibit1.Chinacarbondioxideemissionsbreakdownbysource(2020)Exhibit2.ChinagreenhydrogenLCOEtodecline38%by2025e,andtobecheaperthancoalhydrogenby2025eSource:Wind,HSBCQianhaiSecuritiesSource:ChinaPVIndustryAssociation,ChinaHydrogenAlliance,HSBCQianhaiSecuritiesestimatesExhibit3.ThevirtuouscycleseeninsolarisapathelectrolyserscouldcopySource:ChinaPVIndustryAssociation,BNEF,HSBCestimates,HSBCQianhaiSecuritiesestimatesCoal-firedpower34%Steel15%Cement11%Petrochemical5%Industrial-usecoal9%Gasoline/dieselvehicle7%Residentialcoal-firedheating5%Otherindustrial10%Otherresidential4%19.412.00.05.010.015.020.025.02021SolarLCOEreductionElectrolysersystemcostreductionOthers2025eRMB/kgRedarea:Chinacoalhydrogencostrange(upperlimitisassumingcarbonistradedatRMB100/tonne)1500effectiveoperatinghoursforsolarandelectrolyser0.000.501.001.502.002.503.003.504.000501001502002502010201120122013201420152016201720182019202020212022e2023e2024e2025eGlobalsolarinstallation(GW)(LHS)Systeminstallationcost(USD/w)GWUSD/wInstallationcostdeclined83%during2010-2021.andglobalinstallationincreasedby24%CAGRfrom2010to20217EnergyTransition●EquitiesMarch2022Exhibit4.ForecastfortheChinaelectrolysermarketin2022,bydeveloperExhibit5.Breakdownofglobalelectrolysermarketin2022,byregionSource:Companydata,BNEFestimates,HSBCQianhaiSecuritiesSource:BNEFestimates,HSBCQianhaiSecuritiesThemostviablesolutiontotheultimatecleanenergysolutionInthisreport,wefocusongreenhydrogenapplicationsthatarethemostcommerciallyviableinthenextfiveyears-chemicalandsteelproduction–withnotransportationasgreenhydrogenismadeonsite.However,ifwelookattheevenbiggerpicture,greenhydrogencouldalsofindmassapplicationintransportation(e.g.trucksandbusesthatarepoweredbyfuelcells,whichgenerateelectric-powerwithhydrogen),heatgeneration(hydrogencanbemixedinwithnaturalgaspipelinesandusedtoheatbuildingsorwaterforresidentialuse)andalmostallaspectsofindustryactivitiesthathavebeensupportedbyfossilfuels.Thelackofinfrastructureandhighcostshaverestrictedhydrogen’susebeyondoilandgas,chemicalandthesteelmakingindustries,buttheeconomicsforbroaderapplicationscouldworkoutinthelongerterm.Amoreimportantrolethatgreenhydrogencouldplayisinenergystorage.Storingenergyintheformofhydrogenissignificantlycheaperthanchemical-basedlithiumbatteries.Theflexiblenatureofelectrolysisandlowcostofhydrogenstoragecouldaccommodatetheintermittencyandvolatilityfromrenewableenergypowerlikesolarandwind.Atthesametime,thiscoulddramaticallyreducetheunitcostsofhydrogenproduction.Therefore,weseeabrighteroutlookforrenewablepowerlikesolarandwind.Webelievethatabuild-upofanexcesssupplyofrenewablepoweroverthenextdecade–leadingtocurtailmentwhererenewablepowergeneratedcannotbeacceptedbythepowergrid–canhelpacceleratetheapplicationofgreenhydrogenwithstoragefacilities.010002000ConservativeOptimisticOthers(notlow-carbon)Othernon-SOEsBaofengThreeGorges,Huadian,andotherSOEsPetroChinaSinopecMWChina69%Europe13%ROW18%EnergyTransition●EquitiesMarch20228Exhibit6.GreenhydrogenstoragecouldhelpavoidcurtailmentofsolarandwindSource:HSBCQianhaiSecuritiesExponentialgrowthislikelytohappenin2024-25eWeexpectaverageannualelectrolysersysteminstallationtobe20GWin2022-27e(comparedtoonly1-1.5GWin2022e)inChina.Webelieveexponentialgrowthinelectrolyserinstallationislikelytohappenin2024-25e,asthenextbatchofmassgreenhydrogenprojectswilllikelybecompletedin2024e.ThisisafterSinopec’sfirstgreenhydrogenprojectiscompletedinmid-2023e,atwhichpointthetrueoperatingcostscanbeassessedbytheoilmajors,whocouldthendecideonnewprojects.Thatisalsolikelytobeatimewhenelectrolysermakersscaleuptheircapacitytoover10GWandelectrolysercostssignificantlydecline.Thenextgenerationofsolarcelltechnologylikehetero-junctionsolarcells(HJT)willlikelydrivedownsolarcostsby2024easwell.Therefore,inviewofthesependingchanges,webelieve2024-25islikelytobetheturningpointforthegreenhydrogenindustry.Smallrevenueexposurebutagoodre-ratingopportunityin2022-24eAdmittedly,noneofourcoveredcompanieswillhavesignificantrevenueexposuretogreenhydrogeninthenexttwoyears.Partofthereasonisthatourcoveredcompanieshaveanestablishedmaturebusinesswithleadingmarketshares,andthatgreenhydrogenisanemergingsectorwithlittlecontributionasofnow.Inaddition,companieswithpurerexposurearenotlisted.Despitethis,webelievemostcompaniesalongthegreenhydrogensupplychainwillenjoyre-ratingopportunitieswhentheindustryapproachesmassapplicationin2023-27e.Taketheelectricvehicle(EV)industryasanexample.TheP/Emultipleformajorlistedcompaniesrosefromc20xtoc50xin2015-19,aheadofthesurgeinEVsales.Similarly,webelievecompanieswithgreenhydrogenexposuredeservehighervaluationsbecauseoftheincreasinglyvisibleprospectsforgreenhydrogen.Weidentifythefollowingtypesofcompanieswithare-ratingpotential:1)Playersthatmakeelectrolysers,orcomponentsforelectrolysers,thathavelargermarketpotentialandhigherentrybarriers(seeExhibit14andExhibits44-47fordetails).2)Playerswithresourcestransferabletothesebusinessesarelikelytohaveanedge(SeeExhibit14fordetails).WaterSolarElectrolyzerGridHydrogenstorage:PressurizedcontainersRefineries/Fertilizermakers/SteelmakersElectricityduringsunnydaysWind9EnergyTransition●EquitiesMarch2022Exhibit7.RevenueexposuretohydrogenforourcoveredcompaniesExhibit8.ChinaelectrolyserequipmentsystemannualspendingSource:Companydata,HSBCQianhaiSecuritiesestimatesSource:BNEF,HSBCQianhaiSecuritiesestimatesExhibit9.ChinaA-shareEVsectorcompaniesre-rated1yearbeforesignificantsalesgrowthNote:OurEVsectormultipleisbasedon10majorEVsupplychaincompaniesSource:Company,Wind,HSBCQianhaiSecuritiesStocksCNCEC(601117CH,RMB9.33,Buy,TPRMB15.60):Weestimategreenhydrogenandcarboncapture,utilisationandstorage(CCUS)todirectlycontributeto14%ofCNCEC’srevenueby2024e.Inaddition,weexpectCNCEC’sstrongfootinginCO2reductiontechnologytogiveitanadvantageinwinningnewchemicalprojectsgivenrisingemissionrequirementsbythegovernment.Upto40%ofCNCEC’snewordersarerelatedtoCO2reductionin2021.OurnewtargetpriceofRMB15.60(previouslyRMB15.20)impliesc67.2%upsidefromthecurrentshareprice.WemaintainourBuyratingonthestock,givenimprovingearningsstabilityandlesscyclicalityfromitsengineering,procurementandconstruction(EPC)business,smoothedbyhydrogen,CCUSandothercarbonreductionsolutions.Wealsoexpectmoresustainableself-operatingbusinesssuchasadiponitrileproductioncouldalsohelpreduceCNCEC’searningcyclicality.Thestockistradingata1.1x2022ePB,lowerthanthec2.0xlevelduringaperiodofhighearningsgrowthin2010-12(36%CAGR)andthebullmarketin2015.5.1%0.9%1.7%0.0%15.0%11.1%9.0%3.6%0.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%16.0%SinopecOilfieldEquipmentCNCECLongiMCC2022e2024e4.87901020304050607080902021e2022-2026e(average)ElectrolyserequipmentsystemmarketsizeRMBbn0.010.020.030.040.050.060.070.00100000200000300000400000500000600000Jan-15Aug-15Mar-16Oct-16May-17Dec-17Jul-18Feb-19Sep-19Apr-20Nov-20Jun-21Jan-22ChinamonthlyEVsalesOneyearforwardPEUnitsxEnergyTransition●EquitiesMarch202210Longi(601012CH,RMB80.50,Hold,TPRMB72.60):Longiisboththelargestwafersupplierandmodulesupplierglobally,intermsof2021salesvolume.Wealsoseepotentialupsidefrombetter-than-expectedcontributionfromitsgreenhydrogenequipmentbusiness.AsofOctober2021,Longihad500MWinmanufacturingcapacityinelectrolysersandplanstoexpandthisto5-10GWinfiveyears.OurtargetpriceisRMB72.60(unchanged).With9.8%downsidefromcurrentlevels,wemaintainourHoldratingonthestock,asweseegreatpotentialinitsgreenhydrogenequipmentbusiness.MCC(601618CH,RMB3.83,Buy,TPRMB7.20):ChinaMetallurgicalGroupCorporation(MCC)isthelargestmetallurgicalengineeringandconstruction(E&C)contractorinChina(c90%marketshare)andglobally(c60%marketshare).Mostofitsmetallurgicalprojectsareforsteelproduction,whichwebelievewillstarttousehydrogen(weassume5%ofthesteelinChinawillusehydrogeninsteadofcarbonmonoxideby2027e).WebelieveMCCwillbenefitfromhydrogen’sapplicationinthesteelindustry.WekeepourtargetpriceunchangedatRMB7.20.OurTPimplies88%upsidefromcurrentlevels,andwemaintainourBuyratingonthestock.SinopecOilfieldEquipment(000852CH,RMB6.40,Hold,TPRMB6.40):WebelieveSinopecOilfieldEquipmentcouldbenefitfromtheaggressivecarbonreductionendeavoursbyitslargestcustomerandcontrollingshareholder,Sinopec.However,asitssharepricehasrisenby47%inthepastyear,outperformingtheOilfieldServicesIndexwhichrose10.5%duringthesameperiod(comprising11A-sharelistedoilfieldservicesproviders),webelievetheimprovingprospectsforthehydrogenbusinesshavebeenpricedin.Meanwhile,weremaincautiousonSinopecOilfieldEquipment’sgrowthprospects,asithasyettoproveitscompetitivenessineitheroilfieldequipmentorhydrogenproducts.WeraiseourtargetpricetoRMB6.40fromRMB5.60.With0.0%upside,wemaintainourHoldrating.SectorcatalystsanddownsiderisksPotentialcatalysts:1)Risingcarbontradingvolumesandprices;2)majorgreenhydrogenprojectannouncements;3)lowersolarandelectrolysercosts;4)risingcoalandnaturalgasprices,and5)moresupportivepoliciesarerolledout.Keydownsiderisks:1)Lower-than-expectedcostreductionsinelectrolysers;2)lower-than-expectedcostreductionsinsolar;3)lower-than-expectedcarbontariffhikes,and4)incidentsrelatedtohydrogensafetyfailures.Company-specificcatalystsCNCEC:Ramp-upofadiponitrilecapacity(mainrawmaterialrequiredfortheproductionofnylon66),newself-operatingchemicalprojectlaunches,SOEreform-ledindustryconsolidation,andmajorhydrogen-relatedprojectwins.Exhibit10.RatingsandestimatesCurrent____TP______Rating__Upside/12/2021eEPS(RMB)12/2022eEPS(RMB)12/2023eEPS(RMB)CompanyTickerCurrencypriceOldNewOldNewdownsideOldNewOldNewOldNewChinaNationalChemical601117CHRMB9.3315.2015.60BuyBuy67.2%0.780.661.010.951.211.21SinopecOilfieldEquipment000852CHRMB6.405.606.40HoldHold0.0%0.0460.0460.0450.0510.0480.053MCC601618CHRMB3.837.207.20BuyBuy88.0%0.420.420.510.510.600.60Longi601012CHRMB80.5072.6072.60HoldHold-9.8%1.861.862.072.072.112.11Note:Pricedatcloseof22March2022Source:Companydata,HSBCQianhaiSecuritiesestimates11EnergyTransition●EquitiesMarch2022Longi:Deliveryofelectrolysers,announcementofnewcapexplansforelectrolysers,majorelectrolyserorders,andannouncementoftechnologybreakthroughsinelectrolysers.MCC:Majornewcontractsinsteel-hydrogenprojects,andbreakthroughsinthesteel-hydrogentechnology.SinopecOilfield:Oilpricesurge,majorhydrogen-relatedorders,majorcapexplansbyparentcompanySinopec,andmajorCCUSrelatedorders.Ourestimatesvs.consensusChinaNationalChemical:Our2021earningsestimatesareinlinewithconsensus,butour2022-23eearningsestimatesare6-10%aboveconsensus,mainlybecauseofourhigherexpectationsongreenhydrogen,CCUS,andothercarbon-reductionprojects.SinopecOilfieldEquipment:Our2021-23eearningsestimatesareinlinewithmarketconsensus.Longi:Our2021-23eearningsestimatesare6-23%belowconsensusasweseepressureonthecompany’swafermarginsgivenindustryovercapacity,butwebelievethisismostlypricedin.MCC:Our2021-23earningsestimatesare10-18%aboveconsensusgivenourmorebullishnewcontractforecasts.ESGIntegrationQuantifyingthepositivesofgreenhydrogenUnderourassumptions,by2027e:52.65mtonsofsteel(5%ofsteelproductioninChinain2020)willbeproducedwithgreenhydrogen.Thiscanreducecarbondioxideemissionsby96.35mn(assuming1.83tonCO2/steelproduction),whichis0.9%ofChina’stotalcarbonemissionsin2020.1.25mtonsofgreenhydrogenwillreplacegreyhydrogen(hydrogenproducedwithcoal)inchemicalproduction.Thiscanreducecarbondioxideemissionsby28.75mtons,whichis0.3%ofChina’stotalcarbonemissionsin2020.Insum,ourestimatesforgreenhydrogenby2027ecouldreducecarbonemissionsby125.1m,whichisabout1.2%ofChina’scarbonemissionsin2020.Exhibit11.HSBCQianhaiestimatesvsconsensus____HSBCQianhaiestimates______________Consensus____________________Variance__________CompanyRMBm2021e2022e2023e2021e2022e2023e2021e2022e2023eChinaNationalChemicalRevenue137,696165,657196,412128,770149,085169,4477%11%16%Netprofit4,2336,0797,7424,2295,7167,0670%6%10%SinopecOilEquipmentRevenue6,3887,0707,3996,5797,0137,015-3%1%5%Netprofit364042373941-3%2%1%LongiRevenue111,820119,120107,57888,070116,821135,21627%2%-20%Netprofit10,06811,38311,61110,75613,24514,993-6%-14%-23%MCCRevenue535,130626,705711,580455,008554,045600,21518%13%19%Netprofit8,64110,49312,4047,8659,37710,50610%12%18%Source:Companydata,Wind,HSBCQianhaiSecuritiesestimatesEnergyTransition●EquitiesMarch202212IntegratingESGintoourfinancialsandvaluationsInadditiontotheindustryimpact,weidentifythreekeyESGfactorsthatarecriticaltothesector–renewableexposure,corporategovernance,andsocialactivity–andapplytheimpactfromthesefactorstoourfinancialsandvaluations.OuranalysisofChinaNationalChemical’sESGeffortsresultsinamodestincreasetoourvaluationpremium.Ourtargetmultipleof1.8xPBhasenjoyedapremiumtoitshistoricalPBlevelof1.4xsince2010.ForSinopecOilfield,weraisethetargetmultipleto20%belowitshistoricalaverage(comparedto30%previously),notonlybecauseofthehigherROEprojection(2022eROEof2.1%versus2022eROE1.9%previously),butalsobecauseofitsimprovingESGprofileonthehigherrevenueshareexpectedfromrenewables.Exhibit12.WeintegrateourESGfactorsintoourmodelsIntofinancialsIntovaluationsChinaNationalChemical(601117CH)SinopecOilfieldEquipment(000852CH)EnvironmentRevenueexposuretorenewables√√40%newcontractsharein202110%revenuesharein2023eSocialInvestment/donationstosocialgoodsDonatedRMB12mnforpovertyalleviationin1H21N/AGovernanceBoardindependenceThreeofthesevenboarddirectorsareindependentThreeoftheeightboarddirectorsareindependentSource:Companydata,HSBCQianhaiSecuritiesestimates13EnergyTransition●EquitiesMarch2022Exhibit13.HydrogenrelatedcompsCompanynameStockCodeCcyRatingTPClosingMarketcap.3MADTV____PE(x)_________PB(x)__________ROE______EPSCAGR2022/3/22USDbnUSDm2021e2022e2021e2022e2021e2022e2021-23eElectrolysermaker/EPCLongi601012CHRMBHold72.6080.4968.4483243.338.98.96.724%20%29%SungrowPower300274CHRMB113.4126.4641663.842.113.19.721%24%42%MingYangSmartEnergy601615CHRMB23.897.9025512.415.31.71.615%11%-27%ChinaNationalChemical601117CHRMBBuy15.609.338.9511114.19.81.21.110%11%23%ShenzhenCenterPowerTech002733CHRMB16.030.974823.716.65.23.524%26%23%HydrogenstorageandCCUSrelatedSinopecOilfieldEquipment000852CHRMBHold6.406.400.7828139.0124.82.72.62%2%6%MoonEnvironmentTech000811CHRMB12.391.455442.237.98.76.524%20%7%CIMCEnric3899HKHKD8.872.30917.314.01.81.711%13%21%SolutionofhydrogenapplicationinsteelproductionMCC601618CHRMBBuy7.203.8311.551249.27.60.80.79%10%17%SinosteelEngineering&Tech000928CHRMB6.931.393916.411.21.41.310%11%29%GlobalnamesexposedtoHydrogenITMPowerITMLNGBp349.402.8416NANA4.95.6-9%-4%8%NELNELNONOK17.572.9214NANA5.75.8-11%-8%-60%SiemensEnergyENRGYEUR21.4017.147855.919.91.01.02%5%100%Source:Bloomberg,Companydata,HSBCQianhaiSecuritiesestimates(forratedstocks)14EnergyTransition●EquitiesMarch2022Exhibit14.ChinagreenhydrogensupplychainSource:Company,HSBCQianhaiSecuritiesElectrolyserSystem:SungrowPower(300274CH);Longi(601012CH);FujianSnowman(002639CH);ShenzhenCenterPowerTech(002733CH);ChinaStateShipbuildingCorporationNo.718Research(unlisted)DalianInstituteofChemicalPhysics,ChineseAcademyofSciences(unlisted)TianjinMainlandHydrogenEquipment(unlisted);SuzhouJingLiHydrogenEquipment(unlisted)SolarElectrolyserSystemEPC:ChinaNationalChemical(601117CH);SungrowPower(300274CH)GreenHydrogenProducer:BaoFengEnergy(600989CH);ChinaPetro&Chemical(600028CH);ChinaEnergyEngineering(601868CH);ElionEnergy(600277CH);HebeiConstructionGroup(1727HK)Stack:SungrowPower(300274CH);Longi(601012CH)WeifuHigh-Tech(000581CH);MingYangSmartEnergy(601615CH);ChinaStateShipbuildingCorporationNo.718Research(unlisted);DalianInstituteofChemicalPhysics,ChineseAcademyofSciences(unlisted)TianjinMainlandHydrogenEquipment(unlisted)SuzhouJingLiHydrogenEquipment(unlisted)BalanceofPlant:CIMCEnric(3899HK):hydrogenstorageGloriousSinodingGasEquip(unlisted):hydrogencompressor(liquefaction)MoonEnvironmentTech(000811CH):hydrogencompressor(liquefaction)Doright(300950CH):heatexchangerandstoragetanksSinopecOilfieldEquipment(000852CH):hydrogencompressorPFSAmembrane/Diaphragm:DongyueFuturehydrogen(unlisted)SuzhouKerunNewMaterial(unlisted)BipolarPlates:AdvancedTech&Material(000969CH)WeifuHigh-Tech(000581CH)Catalyst：HaohuaChemical(600378CH)MingYangSmartEnergy(601615CH)SinocatEnvironmentalTech(688737CH)Automationequipment:Lead(300014CH)Solutionofhydrogenapplicationinsteelproduction:MCC(601618CH)SinosteelEngineering&Tech(000928CH)15EnergyTransition●EquitiesMarch2022Exhibit15.ChinaCCUSsupplychainSource:Companydata,HSBCQianhaiSecuritiesSolutionProvider:ChinaNationalChemical(601117CH)SinopecOilfield(600871CH)HaohuaChemical(600378CH)SpicYuandaEnvironmental—Protection(600292CH)ChinaOilHbpScience&Technology(002554CH)Operator:ChinaPetroleum&Chemical(600028CH)GuanghuiEnergy(600256CH)PetrochinaCompany(601857CH)ChinaShenhuaEnergy(601088CH)Compressor:MoonEnvironmentTechnology(000811CH)FujianSnowman(002639CH)JinTongLingTechnology(300091CH)EnergyTransition●EquitiesMarch202216ValuationandrisksValuationRisksChinaNationalChemical601117CHCurrentprice:RMB9.33Targetprice:RMB15.60Up/downside:67.2%WecontinuetouseaPBmultipletovaluethestock,androlloverourvaluationbaseyear.Ourtargetpriceisbasedona1.8xone-yearforwardPB(1SDaboveitshistoricalaverage,unchanged)andour2022eBVPSestimatesofRMB8.67(previouslyanaverageofRMB8.43in2021-22e).WebelievethestockdeservesapremiumtoitshistoricalPBlevel1.4xsince2010,consideringitsimprovingROEoutlook(2021-23eROEof9.6-13.2%,aboveitshistoricalaverageof10.8%since2010).Thestockistradingata1.1x2022ePB.OurtargetpriceofRMB15.60(previouslyRMB15.20)impliesc67.2%upsidefromthecurrentshareprice.WemaintainourBuyratingonthestock,givenimprovingearningsstabilityandpotentialupsidefromthehydrogenbusiness.Keydownsiderisks:Fluctuationsincrudeoilprices.ChemicalindustrycapexcutsForeignexchangerisksLower-than-expectedadiponitrilecapacityramp-upLower-than-expecteddevelopmentinhydrogenandCCUSbusinessBuyDunWang[S1700519060002]dun.wang@hsbcqh.com.cn+862160813827Longi601012CHCurrentprice:RMB80.50Targetprice:RMB72.60Up/downside:-9.8%WebaseourtargetpriceofRMB72.60(unchanged)onaDCFvaluationmodel.Keyassumptionsare:(1)Costofequityof9.0%(unchanged),basedonarisk-freerateof2.0%,amarketriskpremiumof6.0%,andabetaof1.16.(2)After-taxCODof4.3%(unchanged).(3)Debt-to-capitalratioof12%(unchanged).(4)Operatingcashflow(beforechangesinworkingcapital)CAGRof12%(unchanged)in2020-29e.(5)CapexofRMB15.8bnin2021e,RMB7.4bnin2022e,andRMB7.3bnin2023e,andRMB2-5bnperyearover2024-29e(unchanged).(6)Terminalgrowthrateof2%(unchanged).With9.8%downsidefromcurrentlevels,wemaintainourHoldratingonthestock,asweseegreatpotentialinitsgreenhydrogenequipmentbusiness.Keyupsiderisks:Higher-than-expectedcostreductionsinnon-SiwafersFaster-than-expectedwafercapacityexpansionBetter-than-expectedwaferdemandKeydownsiderisks:Weaker-than-expectedPVdemandRiskofequitydilutionfromfundraisingexerciseGreater-than-expectedcutstowaferASPsHoldCoreyChan[S1700518100001]corey.chan@hsbcqh.com.cn+862160813801MCC601618CHCurrentprice:RMB3.83Targetprice:RMB7.20Up/downside:88%OurTPisbasedonasum-of-the-partsapproach.Engineering&construction:Wevaluethisdivisionbyapplyinga2023ePEmultipleof10x(unchanged),whichisclosetothehistoricalaverageofglobalE&Cpeers.Propertydevelopment:Wevaluethisdivisionbyapplyinga2023ePEmultipleof7x(unchanged),whichisclosetothehistoricalaverageofindustrypeers.Resourcesdevelopment:WevaluethisdivisionusingDCF.OurWACCassumptionis7.9%(unchanged).Equipmentmanufacturing:Wevaluethisdivisionbyapplyinga2023eEV/EBITDAmultipleof6x(unchanged),whichisclosetothehistoricalaverageofindustrypeers.WemaintainourtargetpriceunchangedatRMB7.20.OurTPimplies88%upsidefromcurrentlevels,andwemaintainourBuyratingonthestock.Keydownsiderisks:SlowdowninmetallurgicalinvestmentWeaker-than-expectedmarginsonintensifiedcompetitionHigher-than-expectedcapexinminingProjectdelaysorcancellationsProfitvolatilityfromnon-recurringitemsBuyCoreyChan[S1700518100001]corey.chan@hsbcqh.com.cn+862160813801SinopecOilfieldEquipment000852CHCurrentprice:RMB6.40Targetprice:RMB6.40Up/downside:0.0%WeraiseourtargetpricetoRMB6.40fromRMB5.60,mainlytoreflectourhigherearningsestimatesin2022-23e.Weapplya12-monthforwardmultipleof2.65x(previously2.32x)toouraverage2021-22eBVPSestimateofRMB2.40(unchanged).Ourtargetmultipleis20%below(previously30%)thestock’shistoricalaverageof3.31xbetween2015andAugust2020.Weraisethetargetmultipleto20%belowitshistoricalaverage(30%belowpreviously),giventhehigherROEprojection(2022eROEof2.1%vs1.9%previously).OurnewtargetpriceofRMB6.40impliesc0.0%upsidefromthecurrentshareprice.WemaintainourHoldratingonthestock.Keyupsiderisks:Stronger-than-expectedshalegasdevelopmentinChinaFaster-than-expectedoverseasexpansionAhigher-than-expectedcrudeoilpriceLarger-than-expectedupstreamcapexofChinaoilmajorsStronger-than-expecteddevelopmentofhydrogenbusinessKeydownsiderisks:SlowdowninshalegasandoilfieldequipmentIntensecompetitionWorkingcapitalmanagementrisksWeaker-than-expecteddevelopmentofhydrogenbusinessHoldDunWang[S1700519060002]dun.wang@hsbcqh.com.cn+862160813827Note:Pricedatcloseof22March2022Employedbyanon-USaffiliateofHSBCSecurities(USA)Inc,andisnotregistered/qualifiedpursuanttoFINRAregulationsSource:HSBCQianhaiSecuritiesestimates17EnergyTransition●EquitiesMarch2022GreenhydrogenHugemarketpotentialTheuseofhydrogenisalreadyrelativelymatureinthechemicalandrefiningindustry.Andgreenhydrogenisreplacingcoal-madeornatural-gas-madehydrogenasthecostofgreenhydrogendeclines.Inthechemicalindustry,hydrogenisprimarilyusedfortheproductionofammonia,abasicfertiliser,whileintherefiningsector,hydrogenisusedfordesulphurisation.Forthesteelmakingindustry,thereisstillroomfortechnologytoimproveandcoststofalltojustifyreplacingcarbonmonoxideandnaturalgaswithhydrogen.Mixinghydrogenwithnaturalgasandcoke-ovengasinsteelproductioncanreducecarbonemissionsby10-80%(comparedtopurecoke-ovengasornaturalgas),dependingontheshareofhydrogeninthegasmixortechnologyroute(ablastfurnaceoragasshaftfurnace),accordingtoourestimates,basedondatafromChinaIronandSteelAssociation.Meanwhile,usinghydrogentoreplacecoalandcokeinthegasmixwillincreasesteelcostsbyRMB50-750/ton(assumingRMB24/kghydrogenprice),accountingfor5-75%ofcurrentsteelprocessingcost(totalcostexcludingironore),or1-15%oftheaveragesteelpriceinChinain2022(accordingWind).Wenotethattheeconomicsofhydrogen-producedsteelimprovesifweconsiderthecarboncost:onaverage,steelprocessingproduces1.5tonsofcarbonemissionspertonofsteelusingthetraditionalmethodand,ifthecarboncostisaboveRMB300/ton,usinghydrogencanreducecarboncostsbyRMB45-450/tonofsteel.WealsonotethatreducinghydrogencoststoRMB12/kg-RMB15/kgby2025ecouldeffectivelyrendertheusehydrogeninsteelmakingeconomicinsomecases.Exhibit16.Usesofhydrogenintherefining,chemicalsandsteelmakingsectorApplicationDescriptionRefining1)Hydro-cracking;2)hydro-treating(e.g.fueldesulphurisation);and3)biorefineryAmmoniaProductionofammonia(forureaandotherfertilisers)MethanolProductionofmethanolandotherderivatives(forplastics,paints,carpartsandconstructionmaterials,orcarfuels)Otherchemicalse.g.Polymers,polyurethanesandfattyacidsSteelmakingUsedasareducingagentinthemanufactureofironpelletsandthecarbonpurificationprocessSource:HydrogenRoadmapEuropebyFCHJU,HSBC,HSBCQianhaiSecuritiesWhilecostlyinthenearterm,webelievechemicalproducersandsteelmakersareincentivisedtoinvestingreenhydrogenprojects,astheytrytoexpandtheircapacity.Localgovernmentshaveemissionreductiontargets,andtheyaremorelikelytograntnewcapacitypermitstothoseoperatorsthathaveminimumnewemissionadditionsoremissionreductionagendasthatcanjustifytheinvestmentinheavyemissionprojects.On23March2022,theNDRCreleasedHydrogenDevelopmentPlan2021-35onitswebsite,proposingtostrictlylimitnewcapacitythatusesfossilfueltoproducehydrogen,andencouragedevelopmentofgreenhydrogen.VirtuouscyclestartsGreenhydrogenandCCUSprojectsareacceleratinginChinaWeexpectmassapplicationingreenhydrogenascostsdeclinePreferplayerswithresourcestransferabletothisemergingmarketEnergyTransition●EquitiesMarch202218Ourmarketsizingindicates2.55mtonsofannualgreenhydrogenproduction,equivalentto120GWofdedicatedsolar-to-hydrogenprojects(assumingallsolar-powered)inChinaby2027e.Thiswillaccountfor7%ofChina’stotalhydrogensupplyby2027e.IfweassumeaRMB3.3/waverageelectrolysersystemcostduring2022-2027e,totalelectrolysersystemequipmentdemandcouldbeRMB396bnby2027e,andaverageannualequipmentspendingtobeRMB79bnin2022-27e.Ourmarketsizingandkeyassumptionsareasfollows:Ifweassume5%ofthesteel(1053mntonsin2020)isproducedwithhydrogenby2027einChina,atanaverage25kghydrogenpertonofsteel,thetotaldemandforhydrogencouldbe1.3mtons,or62GWofsolarinstallation(assumingallsolar-powered).Since36%ofChina’ssteelmakingcapacityislocatedinnorthernandnorthwesternChinawitheffectiveannualsolaroperatinghoursofover1,500in2020(accordingtoASKCIResearch),webelieveitismoreeconomicalforcapacityintheseplacestousehydrogenproducedfromrenewables.Ifweassumethat,by2027e,greenhydrogenwillreplace5%ofthehydrogendemandmarketthatwas25min2020(ChinaCoalProcessing&UtilizationAssociation),Chinaneedstoproduce1.25mtonsofgreenhydrogen,or58GWofsolarinstallation(assumingitisallsolar-powered).Webelievethisforecastisinlinewiththegovernment’splan:InnerMongolia’senergyadministrationaloneaimstobuildover0.48mtonsofgreenhydrogencapacityby2025e,asdisclosedinits14thFive-yearPlanpublishedon28February2022.InnerMongolia’sgreenhydrogenproductiontargetismuchhigherthanNDRC’snationaltargetof0.1-0.2mtonsby2025e(releasedon23March2022).WebelievetheNDRCdoesnotwanttosetatonethatencouragesaraceonmassprojectconstructionwithoutcommercialisation.Notethatourestimateforthetotalhydrogendemandmarketdidnotincludesteelproduction,whichisnegligibletothecurrenttotalhydrogenmarketandweestimateitseparately.Weassumemostofthegreenhydrogenprojectsarelocatednearuserbases(chemicalplantsorsteelplants)anddonotneedtobeartransportationandrefuelingcosts.Also,wedonotfactorinhydrogenforvehicleuseinthemarketsizingofgreenhydrogen,ashydrogenforvehiclesusuallyinvolvestransportationandrefuelingcostsandthereforeislesslikelytobecomeeconomicallyviableasfastasinthechemicalandsteelindustry.Amoredetailedcalculation:2.55mtonsofannualgreenhydrogenneeds142800GWhofelectricity(ata56kwh/kghydrogenconversionrate),whichtranslatesinto119GWofdedicatedsolarcapacityat1,200effectiveannualoperatinghours,or119GWfromanelectrolysersystem(assumingitisallsolar-powered).AssumingaRMB3.33/waverageelectrolysersystemcost,totalelectrolysersystemequipmentdemandcouldbeRMB396bn.Ifweassumegreenhydrogenprojectspurchase50%electricityfromoutside,insteadof100%relianceonsolarpower,ourprojectionforelectrolyserinstallationwillbe60GWby2027e(comparedto119GWpreviously),but2.55mtonsofhydrogencanstillbeproducedannually;Accordingly,totalelectrolysersystemequipmentdemandcouldbeRMB198bnin2022-27e.Inthiscase,theutilisationofelectrolyserimprovesfrom1,200-1,500hourstoaround3,000hoursannuallyandLCOHcouldbeloweredbyc20%onaverage(Exhibits29-30),buttheprojectisnot100%‘green’,asexternalelectricitycouldbeproducedwithcoal.Inreality,projectslikeBaofengandSinopec’sarenotdedicatedsolar-to-hydrogenprojects,andarepurchasingelectricityexternally.19EnergyTransition●EquitiesMarch2022Exhibit17.ChinaelectrolyserequipmentsystemannualspendingExhibit18.Chinahydrogenconsumptionbreakdownbydownstream(2020)Source:BNEF,HSBCQianhaiSecuritiesestimatesSource:ChinaCoalProcessing&UtilizationAssociation,HSBCQianhaiSecuritiesExhibit19.ChinahydrogendemandCAGRoutlookExhibit20.Greenhydrogentoaccountfor7%oftotalChinahydrogensupplyin2027eSource:ChinaCoalProcessing&UtilizationAssociation,ChinaHydrogenAlliance,HSBCQianhaiSecurities;e=ChinaHydrogenAllianceestimatesSource:ChinaCoalProcessing&UtilizationAssociation,ChinaHydrogenAlliance,HSBCQianhaiSecuritiesestimatesExhibit21.HydrogenproductioninChinabysource(2020)Exhibit22.CarbonemissioncomparisonofdifferenthydrogenproductionSource:ChinaCoalProcessing&UtilizationAssociation,HSBCQianhaiSecuritiesSource:PlanningInstituteofChemicalIndustry,HSBCQianhaiSecurities4.87901020304050607080902021e2022-2026e(average)ElectrolyserequipmentsystemmarketsizeRMBbnSyntheticammonia37%Methanol19%Oilrefinery10%Combustion15%Others19%4.7%3.0%2.0%0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%5.0%2019-30e2030-35e2035-50eChinahydrogendemandgrowthoutlook(CAGR)CAGRGreenHydrogen7%Hydrogensupplyfromothersources93%Coal62%Naturalgas19%Byproductofotherchemicals(notdedicatedhydrogenproduction)18%Electrolysis1%20-2510500510152025CoalNaturalgasByproductofotherchemicalsGreenhydrogenTonCO2/TonhydrogenCarbondioxide(ton)EnergyTransition●EquitiesMarch202220Greenhydrogencasestudy:acceleratingVariouspilotprojectsstartedin2021,andsomehaveshownpotentialformassapplication:InMarch2021,Baofengstartedoperationsatitssolar-hydrogenproject,theworld’slargest,in2021.Theprojectcanproduce160mcmofhydrogenannually,whichisusedinmethanolproduction(rawmaterialforpolyethyleneandpolypropylene).Asdisclosedbythecompanyon26April2021,thelevelisedcostofhydrogen(LCOH)isaslowasRMB1.34/cm,orRMB15/kg.Thelower-than-averageLCOHismostlybecauseofthehigherutilisationofelectrolyserswhichwewilldiscussinthecostreductionsection.AccordingtotheSouthChinaMorningPost(7December2021),Sinopecgroup,China’slargestoilrefiner,startedbuildingagreenhydrogenplantwhichisentirelypoweredbysolarenergy,inKuqa,thefarwesternregionofXinjiang.ProductionisexpectedtostartinJune2023,witha20ktonhydrogencapacitysupportedbya300MWsolarinstallation.TheRMB3bninvestmentwillproducegreenhydrogenusedinlocaloilrefiningproduction,replacingthenaturalgassupply.Theapplicationofhydrogeninthesteelindustryisatanearlystagebutthegrowthpotentialissignificantsincecarbonemissionsfromthesteelindustryaccountedfor15%ofChina’scarbonemissionsin2020.SomeleadingsteelmakerssuchasChinaBaowuGrouphavelaidouttheircarbonreductionplansaswell,andthesteel-hydrogenrouteisunanimouslytheirultimateplan,especiallyafter2030e.Greenhydrogen:thecostreductionpathisvisibleWeexpectthegreenhydrogenproductionLCOEtodeclineby38%from2021eto2025e,with54%ofthecostreductioncomingfromthesolarLCOEdecline(39%decrease)and38%comingfromtheelectrolysersystemcostreduction(onaveragea30%decrease).Thiswillenablegreenhydrogentobecheaperthanbluehydrogen(abyproductfromnaturalgasorcoalusingcapturedcarbondioxide)inregionsthathavegoodsunlightconditions(c1,500effectiveannualoperatinghours).Webelievethecostreductionpathisvisiblebecause:ThesolarLCOEwilldecreasemainlyduetonewcelltechnologyapplications(suchasTopcontechnologyin2022eandHJTtechnologyin2023e)andimprovingupstreamcapacitylikepolysiliconin2023e.Electrolysersystemcostswillfallonimprovingeconomiesofscale,learningcurvesandtechnologyupgrades.AccordingtoIRENA,theelectrolysersystemcost(protonexchangemembrane,orPEM)coulddeclineby45%ifannualproductionvolumeincreasesfrom10MW/yearto1,000MW/year(forexampleaselectrolyserproductionlinesareautomated).manuallinecouldbecomeautomated).Similarly,alkalineelectrolysers(anothertechnologyroutetoPEM)systemcostscouldalsodeclinefromeconomiesofscale.Technologyupgradescanalsohelpwithcostreductions,suchasbytheinventionofcheapermembranes,replacingtitaniumwithcheapermaterials,andexertinghigheroperatingpressure.Exhibit23.Projects:applicationofhydrogeninthesteelindustryProjectownerConstructionstartdateProductiondateInvestment(RMBm)SteelCapacity(mtons)OtherinfoInnerMongoliaSaisipuDecember2020April21st202110900.3XinjiangBaYiOctober2019July2020NA1.2XinjiangBaYiDecember2021June2022NA1.2UpgradeonexistingprojectsChinaBaowuSeptember2021September2023eNA1InZhanjiangHbisGroupMay20212023eNA1.2Source:Company,HSBCQianhaiSecurities21EnergyTransition●EquitiesMarch2022Wehavealsomadethefollowingassumptionsinarrivingatourestimates:Ourassumptionisbasedondedicatedsolar-to-hydrogenprojectswithalowerelectrolyserutilisation(20-25%).TheLCOHcouldgoloweriftheelectrolyserenjoyshigherutilisationhours(>50%),poweredbyamixofgrid-connectedelectricityanddedicatedrenewables(solarandwind).Inotherwords,takingadvantageofcheaperrenewablepoweratpeakproductionhoursofthegrid(couldbeaslowasRMB0.10/kwh)andenhancingtheelectrolyserutilisationratecouldhelpreducecosts.Baofeng’shydrogencostisaslowasRMB1.34/cm(orRMB15/kg),mainlybecauseofthehighutilisationofitselectrolyser(closeto3,000hoursannually,basedonourestimates)andlowsolarLCOE(RMB0.22/kwh,ourestimatesarebasedon1,700effectiveoperatinghoursinthelocalarea);highutilisationisthankstothefactthatthecompanypurchaseselectricityexternally(thoughitisexpensiveatoverRMB0.30/kwh)whensolarisn’tworkingduringthenightoroncloudydays.Ourestimatesdonotincludehydrogenstorage,transportation,orrefuelingcosts,whichtogethermorethandoublesthecurrenthydrogenmanufacturingcost,andhindersthemassapplicationofhydrogen.Thatiswhywebelievegreenhydrogenwillfirstachievemassapplicationinareaswithgoodsunlightconditionsandwherehydrogenproductionfacilitiesareclosetosteelandchemicalplantssothereisnoextracostfromlong-distancetransportation,liquefactionandrefuelingofhydrogen.Weestimatethatthecarbonemissionallowanceprices(carbondioxide)inChinawillrisefromRMB57/tonattheendof2021,tooverRMB100/tonin2025e.Thiswillincreasethecostofgreyhydrogen(coal-made+carbonprice)orbluehydrogen(coal-made+CCUS)fromcRMB13/kgin2021tocRMB15/kg(coal-madehydrogenonaverageproduces22.5kgcarbon/kghydrogen)in2025e.Thiswillmakegreenhydrogenlookmoreeconomicincomparison.WebelievecarbonemissionallowancepricesinChinaarelikelytoriseandbecomeclosetotheCCUScost,becausetheChinaEmissionsTradingSchemewasjustlaunchedinJuly2021andtheplatformhasnotrequiredchemicalandindustrialcompaniestopayemissiontariffyet(only2,000+powerplantsareincludedasofnow).China’semissionsallowancepriceissignificantlybelowthatofEuropeaswellastheaverageChinaCCUScost.OurglobalresearchteamalsoexpectsfuturepricesofCO2torisesignificantlyinthedecadesahead(AsiaEnergy&Resources:ESGIntegrated:Onthefrontlineoftheenergytransition,1November2021).Ourassumptionisconservativebecause:1)wedonotincludethepossibilitythatthenaturalgasandcoalpricecouldriseandleadtohighergreyandbluehydrogenprices;2)wedonotincludetherevenueofsellingoxygen,aby-productofelectrolysis.AssumingaRMB0.5/cmoxygenprice(accordingtoWind),oxygensoldatthemarketpricecouldreducethegreenhydrogencostbyc10%,onourestimates.EnergyTransition●EquitiesMarch202222Exhibit24.ChinasolarLCOEtodecline(1,200effectiveoperatinghours)Exhibit25.Weexpecttheelectrolysersystemcost(PEM)todeclineby45%from2021to2025eSource:ChinaPVIndustryAssociation,HSBCQianhaiSecuritiesestimatesSource:IRENA,HSBCQianhaiSecuritiesestimatesExhibit26.ChinagreenhydrogenLCOEtodecline38%by2025e,and…Exhibit27.…inselectiveareasthisimpliesgreenhydrogenLCOEtobecheaperthancoalhydrogenby2025eSource:ChinaPVIndustryAssociation,ChinaHydrogenAlliance,HSBCQianhaiSecuritiesestimatesSource:ChinaPVIndustryAssociation,ChinaHydrogenAlliance,HSBCQianhaiSecuritiesestimatesExhibit28.ChinaLCOH(RMB/kg)atdifferentsolarLCOEandelectrolysercapex(1200operatinghours)Electrolysersystemcost(RMB/w)4.003.803.613.433.263.102.942.792.65SolarLCOE(RMB/kwh)0.3023.523.022.421.921.420.920.520.119.70.2922.922.421.821.320.820.319.919.519.10.2722.421.821.220.720.219.819.318.918.50.2621.821.220.720.219.719.218.818.418.00.2521.320.720.219.719.218.718.317.817.40.2320.820.219.719.218.718.217.817.316.90.2220.319.819.218.718.217.717.316.916.50.2119.919.318.818.317.817.316.916.416.00.2019.518.918.317.817.316.916.416.015.6Source:ChinaPVIndustryAssociation,ChinaHydrogenAlliance,HSBCQianhaiSecuritiesestimates00.050.10.150.20.250.30.3520212022e2023e2024e2025eLCOEsolar(RMB/kWh)RMB/kWh71.551020040060010MW/year1000MW/yearPowersupplyWatercirculationHydrogenprocessingCoolingOthersCCM(Stack)PTL(Stack)MEA(Stack)Assembly&Frame(Stack)USD/kw24.215.00.05.010.015.020.025.030.02021SolarLCOEreductionElectrolysersystemcostreductionOthers2025eRMB/kg1200effectiveoperatinghoursforsolarandelectrolyserRedarea:Chinacoalhydrogencostrange(upperlimitisassumingcarbonistradedatRMB100/tonne)19.412.00.05.010.015.020.025.02021SolarLCOEreductionElectrolysersystemcostreductionOthers2025eRMB/kgRedarea:Chinacoalhydrogencostrange(upperlimitisassumingcarbonistradedatRMB100/tonne)1500effectiveoperatinghoursforsolarandelectrolyser23EnergyTransition●EquitiesMarch2022Exhibit29.ChinaLCOH(RMB/kg)atdifferentsolarLCOEandelectrolysercapex(1500operatinghours)Electrolysersystemcost(RMB/w)4.003.803.613.433.263.102.942.792.65SolarLCOE(RMB/kwh)0.2518.818.417.917.517.116.816.416.115.70.2318.317.917.517.016.616.315.915.615.30.2217.917.417.016.616.215.815.515.114.80.2117.417.016.616.115.715.415.014.714.40.2017.016.616.115.715.315.014.614.314.00.1916.616.215.715.314.914.614.213.913.60.1816.315.815.415.014.614.213.813.513.20.1715.915.415.014.614.213.813.513.112.80.1615.615.114.714.313.913.513.112.812.50.1615.214.814.413.913.613.212.812.512.20.1514.914.514.113.613.212.912.512.211.9Source:ChinaPVIndustryAssociation,ChinaHydrogenAlliance,HSBCQianhaiSecuritiesestimatesExhibit30.ChinaLCOH(RMB/kg)atdifferentsolarLCOEandelectrolysercapex(1500solaroperatinghours+3000operatinghoursofelectrolyserwithexternalelectricitypurchasedatRMB0.25/kwh)Electrolysersystemcost(RMB/w)4.003.803.613.433.263.102.942.792.65SolarLCOE(RMB/kwh)0.2514.4414.2013.9813.7713.5713.3713.1913.0212.860.2314.1913.9513.7313.5213.3213.1312.9412.7712.610.2213.9513.7213.4913.2813.0812.8912.7112.5412.370.2113.7313.4913.2713.0612.8612.6712.4812.3112.150.2013.5213.2813.0612.8512.6412.4512.2712.1011.930.1913.3113.0812.8512.6412.4412.2512.0711.9011.730.1813.1212.8912.6612.4512.2512.0611.8811.7011.540.1712.9412.7012.4812.2712.0711.8711.6911.5211.360.1612.7612.5312.3112.0911.8911.7011.5211.3511.180.1612.6012.3612.1411.9311.7311.5411.3511.1811.020.1512.4412.2111.9811.7711.5711.3811.2011.0310.86Source:ChinaPVIndustryAssociation,ChinaHydrogenAlliance,HSBCQianhaiSecuritiesestimatesExhibit31.ChinagreenhydrogenLCOEmodel:keyassumptionsandresultsDatainput:SolarLoanpaymentcalculation:Capacity(MW)100AnnualInterestRate5.0%Effectiveoperatinghours1200Paybackperiod(yrs)10Systeminvestmentcost(RMB/W)3.79paymentperyear12Inflation4.0%Discountrate6.0%Discountperiod(yrs)20Debt/assetratio70.0%Solartotalinvestmentcost(RMBm)379.34HydrogenResults:Capacity(MW)100LCOEsolar(RMB/kWh)0.31Effectiveoperatinghours1200LCOEhydrogen(RMB/kg)24.19Conversionefficiency(kwh/kgH2)56Electrolysersysteminvestmentcost(RMB/W)4.00Inflation4.0%Discountrate6.0%Discountperiod(yrs)20Debt/assetratio70.0%Electrolysersystemtotalinvestmentcost(RMBm)400.00Greenhydrogentotalinvestmentcost(RMBm)779.34Note=maintenancecostanddegradationarenotshowninthistablebutarefactoredin.Source:HSBCQianhaiSecuritiesestimatesEnergyTransition●EquitiesMarch202224Exhibit32.Chinacoal-madehydrogencost(RMB/kg)atdifferentcoalpriceandcarbonemissiontariffCarbonemissiontariff(RMB/ton)4070100130160190220250280310Coalprice(RMB/ton)3007.828.489.149.8010.4611.1211.7812.4413.1013.763908.999.6510.3110.9711.6312.2912.9513.6114.2714.9348010.1610.8211.4812.1412.8013.4614.1214.7815.4416.1057011.3311.9912.6513.3113.9714.6315.2915.9516.6117.2766012.5013.1613.8214.4815.1415.8016.4617.1217.7818.4475013.6714.3314.9915.6516.3116.9717.6318.2918.9519.6184014.8415.5016.1616.8217.4818.1418.8019.4620.1220.7893016.0116.6717.3317.9918.6519.3119.9720.6321.2921.95102017.1817.8418.5019.1619.8220.4821.1421.8022.4623.12111018.3519.0119.6720.3320.9921.6522.3122.9723.6324.29120019.5220.1820.8421.5022.1622.8223.4824.1424.8025.46129020.6921.3522.0122.6723.3323.9924.6525.3125.9726.63138021.8622.5223.1823.8424.5025.1625.8226.4827.1427.80Source:ChinaIronandSteelAssociation,HSBCQianhaiSecuritiesestimatesExhibit33.Chinagreenhydrogentotalcostbreakdown(forvehicleuse,2021)Exhibit34.Carbonemissionallowanceprices:EUandChinavsChinaCCUScostSource:ChinaHydrogenAlliance,HSBCQianhaiSecuritiesestimatesSource:IRENA,HSBCQianhaiSecuritiesGreenhydrogen:cheapstoragetohelpreducesolarandwindcurtailmentMorewindandsolarpowerwillincreasepowergridinstabilityandinthelongertermincurcurtailmentrisks.Ourglobalresearchteamsuggeststhat,ratherthancurtailingthiselectricity,producinghydrogenwouldprovideasolutiontoanexcessofrenewableelectricityproductionandcandramaticallyreducetheunitcostsofhydrogenproduction.InthereportGlobalHydrogen:Whythejourneyfromgreytogreenistakingoff(30January2020),theyfoundthehighertheproportionofpowerfromvariablerenewableenergysources,themorehydrogenwillbeneededtobalancethesystem.Theunderlyinglogicisthatelectrolysersareflexibleandstoringhydrogenisatleast5-15xcheaperthanchemical-basedlithiumbatteries,accordingtoourestimates.Thecostofhydrogenstoragevariesdependingontheutilisationofpressurisedcontainers,whichmeetthedailystorageneeds.InourreportA-shareInfrastructureRenewables:Howtoplaytheenergystorageinvestmentupcycle?(2November2021),weestimatedthatChinaneeded865GWofpeak-shavingdemand(levelingoutpeaksinelectricityuseforthegrid)by2027e,drivenbyanincreasingshareofsolarandwindpowerinthepowergrid.UnderourassumptionthatChinawillhave120GWofelectrolyserfacilitiesinstalledby2027e,thesegreenhydrogencapacitieswillcontributeto14%ofChina’speak-shavingcapability.Forthe120GWofsolar-poweredgreenhydrogenfacilities,weassumethathydrogenstoragecapacitycouldbec360GWHinelectricityequivalent,whichcouldstoreuptothreehoursofhydrogenproductionthroughelectrolysisatfullcapacity,orclosetothemaximumvolatilityofthegridduringthedaytime.245212160102030405060HydrogenproductionHydrogenstorageandtransportationHydrogenfuelingTotalcost(RMB/kg)0.020.040.060.080.0100.0120.0Jul-21Aug-21Sep-21Oct-21Nov-21Dec-21Jan-22ChinaEmissionallowances(USD/t)EUEmissionallowances(USD/t)Shadedarea:ChinaCCUSminimumcostrangein2025-30eUSD/ton25EnergyTransition●EquitiesMarch2022Exhibit35.GreenhydrogenstoragecouldhelpavoidcurtailmentofsolarandwindSource:HSBCQianhaiSecuritiesExhibit36.Weestimategreenhydrogenwillaccountfor14%ofChina’speak-shavingcapabilityby2027eExhibit37.OurforecastedChinaenergypeak-shavingdemand,entailedbyincreasingshareofsolarandwindpowersSource:Wind,HSBCQianhaiSecuritiesestimatesSource:Wind,HSBCQianhaiSecuritiesestimatesExhibit38.Energystoragetechnologycomparison:hydrogenstorageis5-15xcheaperthanchemical-basedlithiumbatteriesCost(LCOE:RMB/kwh)Usefullife(rounds)SafetyEnergystoragecapacityDevelopmentcyclePumpedhydro-electricenergystorage0.21-0.2520000MoreLargerLongerLi-ionbatteryESS0.45-1.205000LessSmallerShorterHydrogenstorage(electricityequivalent)0.03-0.1020000MediumLargerMediumNote:OurcalculationofhydrogenstoragecosttranslatedintoelectricitymeasuresdoesnotincludethecostofgeneratingelectricityusinghydrogenSource:BNEF,ChineseSocietyofHydroelectricEngineering,GGII,HSBCQianhaiSecuritiesestimatesWaterSolarElectrolyzerGridHydrogenstorage:PressurizedcontainersRefineries/Fertilizermakers/SteelmakersElectricityduringsunnydaysWindChemicalbatteryESS(GW)8%Solar-poweredgreenhydrogen(forchemicalandsteelindustryonly)14%Pumpedhydro-electricenergystorageandother78%541292173214355707168651,0211,1891,364-2004006008001,0001,2001,4001,60020202022e2024e2026e2028e2030eChina'speakshavingdemandGWEnergyTransition●EquitiesMarch202226Exhibit39.Levelisedcostofhydrogenstorage(USD/kg)andtypicalstorageduration(2020)Note:ThecostrangedependsondifferentconditionsandutilisationrateSource:BNEF,HSBC,HSBCQianhaiSecurities;Exhibit40.Theduckcurve–California’sgridloadmismatchisincreasingduetotherisingshareofsolarpowerSource:CASIO,HSBCQianhaiSecuritiesPrefergreenhydrogentoCCUSSomeinvestorsworrythatacompetingtechnologyroutecalledbluehydrogen---whichproduceshydrogenfromcoalornaturalgasandcapturesthecarbonemitted—couldproducehydrogenatamuchcheaperpricewithoutcarbonemissions.Intermsofitsfuturemarketpotential,webelievetheoutlookforcarboncapture,akeyprocessinproducingbluehydrogen,willnotbeaspromisingasgreenhydrogen,primarilybecauseofrelativelyrigidcostsandalackofamaturepermanentsequestrationsolution.Weexpectthecostofgreenhydrogentobecome,by2025e,cheaperthanbluehydrogeninregionswithgoodsunlightconditions.Atthesametime,wecontendthatgreenhydrogenandCCUScanoftenbecombinedtoprovidecarbonreductionsolutionstogether(e.g.insteelmaking),ratherthanseenastwomutuallyexclusivealternatives.Carboncapture,usageandstorage(CCUS)isatechnologythatcancaptureandmakeeffectiveuseofthehighconcentrationsofCO2emittedbyindustrialactivities.AccordingtotheChineseAcademyofEnvironmentalPlanning,by2021,Chinahad40projectswith3mntonnesannualcapacityinoperationsorunderconstruction(comparedto42mntonnesofglobalcapacity,accordingtoRystadEnergy).TherearemoreprojectsinthepipelineinChinaandwhichshowthepotentialfortheireconomicfeasibilityinapplicationssuchasenhancedoilrecovery(injectingCO2intooil&gasformationtoimproverecoveryrates)orfertiliserproduction.01234567DepletedgasfieldsSaltcavernsRockcavernsAmmoniaLiquidhydrogenPressurizedcontainersPossiblefuturecostreductionTypicalcostrangeYearsMonths/weeksDaysUSD/kg1000012000140001600018000200002200024000260002800012am3am6am9am12pm3pm6pm9pm12pmMW20202019201820172016201520142013201220122020potentialovergenerationincreasedramp27EnergyTransition●EquitiesMarch2022Exhibit41.China’smajorCCUSprojectspipelineCapacity(mtonnes/peryear)PhaseQiluPetro-Shenglioilfiledproject1.0StartedconstructioninJuly2021YanchangPetro5.0UnderplanningShenglipowerplant2.0UnderfeasibilitystudyGuanghuiEnergyXinjiang3.0UnderplanningJiangsuTaizhoupowerplant0.5TostartconstructionSource:Companydata,HSBCQianhaiSecuritiesHowever,webelievetheoutlookforCCUSadoptionwillnotbeaspromisingasgreenhydrogen,primarilybecauseoftherelativelyrigidcostsandlackofamaturepermanentsequestrationsolution:Cost:CarboncaptureequipmenttypicallyinvolvesacompressorthatliquefiesorcompressesCO2usingelectricity.Asacompressorisarelativelymaturepieceofindustrialequipment,weseelimitedroomforcostreductionsandefficiencyimprovement.AccordingtoChina’sCCUSreport(2021)bytheChineseAcademyofEnvironmentalPlanning,thelevelisedtotalcostofCCUSisestimatedtobeaminimumofRMB400/tonne(assuming250kmtransportationdistance)by2025,andcanonlydeclineby23%toRMB310/tonne(lowestcost)by2030(notethattheircostestimatesforthelowestscenarioin2025arehigherthanIEAs’in2021,astheyassumedahighertransportationcost).WhileitmaybehardtolowerthecostofCCUSinthenexttenyears,webelieveCCUScanachieveeconomicfeasibilityincertainscenariossuchascoaltochemicalproduction,ashigherconcentrationsofCO2influegases(typicalincoaltochemicalproduction)canimprovetheeffectivenessandefficiencyoftheprocess,aswellasreducingitscost.Lackofamaturepermanentsequestrationsolution:Oncecaptured,thecarbondioxideneedstobehandledandtransported(viaapipelineorisliquefiedandshipped)toasuitablesequestrationsiteforpermanentstorage.Thecontinualmonitoringandverificationofemissions(normallyfor200yearsasrequired)isanimportantaspectofensuringthattheCO2doesnotleakovertime(seeCarbonCapture&Sequestration:Backinthedebate,butnosilverbullet,23March2021).However,ageographicaldisastercouldendangerthestorageandposeanenvironmentalrisk.Transformingcapturedcarbonintootherchemicalshaslimitedmarketpotential.Therefore,uptillnow,therehasnotbeenamaturesolutiontotheproblemofpermanentstorageforcapturedcarbon.Exhibit42.Levelisedcostofcapturewithdifferentlevelsofcarbondioxideconcentration(2019)Exhibit43.LevelisedcostofCCUScost(2021)Source:IEA,HSBCQianhaiSecuritiesSource:IEA,HSBC,HSBCQianhaiSecurities050100150200DirectaircapturePowergenerationCementSteelHydrogen(methane)Coaltochemicals350USD/tonne020406080100120140LowestscenarioHighestscenarioSequestrationTransportation&operationCapture(highCo2concentration)USD/tonneEnergyTransition●EquitiesMarch202228Wheredotheopportunitieslie?SeekingvisibilityinevolvinggreenhydrogentechnologytrendsTwoelectrolysertechnologies,alkalineandprotonexchangemembrane(PEM),eachhavetheirprosandcons,andarelikelytoco-existinthenextthreetofiveyears.InChina,LongihaschosentostudyandmanufacturealkalineelectrolyserswhileSungrowPowerhasselectedPEMelectrolysersasitstechnologyroute.Themaindifferencesbetweenthetwotechnologiesareasfollows:Currently,alkalineelectrolysisisthemostmaturetechnologyusedcommercially,asitssystemequipmentcostis20-40%lowerthanaPEMelectrolyser.PEMtechnologyisbettersuitedforpairingwithvariableloadsfromnon-dispatchablerenewablessuchaswindandsolar,thankstoitsabilitytoofferrapiddispatchability.ScarcematerialscanpushupPEMelectrolysercostsandmakeitdifficulttoscalethemup.ThecurrentproductionofiridiumandplatinumforPEMelectrolysersonlysupportsanestimated3GW-7.5GWannualmanufacturingcapacity,accordingtoIRENA.Effortsarebeingmadetoreducethedependenceonsuchcriticalmaterial.ThelearningratefordevelopingPEMelectrolyserscanfurtherimprove,tosomeextent,bysharingresearchandexperienceonfuelcelltechnology,sincethisinvolvesthesamefundamentalprocess,butinthereversedirection.Wepreferplayerswithrevenueexposuretocomponentsthathavelargermarketpotentialandhigherentrybarriers.Whileitmaybedifficulttoconcludewhichtechnologywillprevail,thetwotechnologiessharesomesimilarupstreamcomponentsorprocessessuchasPorousTransportLayer(PTLs),BipolarPlates(BPs),andstackassemblyandendplates.ThesecomponentsareusedinbothPEMandalkalineelectrolysersandcanbeusedinfuelcelltoo,sothereforehavelargermarketpotential.PEMtechnologyisusuallyregardedashavinghighertechnologybarriersthanalkaline.TheBalanceofPlant(orBOPwhichreferstovarioussupportingandauxiliarycomponentsofapowerplantsystem)accountsforc55%oftheelectrolysersystemcostandiscompatiblewithbothtypesofelectrolyser,andhasamorevisibleimprovementpathgiventhestandardisationofdesignandsupplychains.WithinaBOP,thecompressorisamajorcomponentthatonlyafewplayershaveanadvantagein.Exhibit44.ElectrolysersystemcostbreakdownforalkalineandPEM(2020)Exhibit45.BalanceofPlantcostbreakdown(2020)Source:IRENA,HSBCQianhaiSecuritiesSource:IRENA,HSBCQianhaiSecuritiesElectrolyser(Stack)45%BalanceofPlant(powersupply,deionisedwatercirculation,hydrogenprocessing,cooling)55%PowerSupply50%DeionisedWaterCirculation22%HydrogenProcessing20%Cooling8%29EnergyTransition●EquitiesMarch2022Exhibit46.PEMelectrolyserstackcostbreakdown(2020)Exhibit47.Alkalineelectrolyserstackcostbreakdown(2020)Source:IRENA,HSBCQianhaiSecuritiesSource:IRENA,HSBCQianhaiSecuritiesTransferableskillsandresourcesarekeyassetsinthisemergingindustryInthenewmarketsofgreenhydrogenandCCUS,itmaybedifficulttoidentifywinnersasthemarketisemergingandthetechnologyischanging.Whatislikelythoughisthatplayerswithresourcesthataretransferabletosuchbusinessesarelikelytohaveanedge.Forexample:ChinaNationalChemicalhasEPCexperienceinvariouschemicalprojectswithdifferentclientssoitmaybeeasierforthemtoprovidesolutionsinintegratingelectrolysersystemswithchemicalcompanies’productionlines,ortosecureagreenhydrogenorCCUScontractwithexistingclients,mostofwhicharechemicalproducers.Sinopechasbeenapioneerinbothgreenhydrogen(startedconstructionon30November2021ofa20ktonsgreenhydrogencapacityfacilityinXinjiang)andCCUS(startedconstructioninJuly2021onitsQiluPetro-ShenglioilfiledCCUSproject).SinopecGroupisthemajorcustomerandcontrollingshareholderofsubsidiarySinopecOilfieldEquipment.GiventhatSinopecOilfieldEquipmentmanufacturescompressorsfornaturalgasexploitation,webelieveitcouldbeeasiertechnologicallyforthemtodevelopcompressorsforbothelectrolysersystemsandcarboncapturesystems,andsecureordersfromtheirmajorcustomerandcontrollingshareholder,SinopecGroup.SolargiantssuchasLongican,webelieve,leveragetheirlowersolarsystemcoststowinmoreordersingreenhydrogensolutions.Longi,oneofthegloballargestsolarmoduleandwaferproducers,announcedon16Octoberthattheyhaveachieved500MWofelectrolysermanufacturingcapacityandwillincreasethecapacityto5-10GWinfiveyears.CIMCEnric(3899HK,HKD10.20,latestreport),oneofthelargestLNGequipmentmakersglobally,maybenefitasthehydrogenmarketgrows,anditshydrogenJVwithHexPurexploitsmarketopportunitiesinH2canistersandsystems.PorousTransportLayer(PTLs)17%Smallparts3%BipolarPlates(BPs)53%Stackassemblyandendplates3%CatalystCoatedMembraneincludingiridiumandplatinum24%PorousTransportLayer(PTLs)8%Structurallayers14%Smallparts4%BipolarPlates(BPs)7%Stackassemblyandendplates10%Diaphragm/ElectrodePackageincludingNickel57%EnergyTransition●EquitiesMarch202230Companysection31EnergyTransition●EquitiesMarch2022InvestmentcaseInvestmentsummaryChinaNationalChemicalEngineering(CNCEC),thecountry’slargestoilandchemicalengineeringandconstructioncompany,standstobenefitfromgreenhydrogenandCCUSdevelopmentinChina,inlargepartbecauseithasclientandtechnologyresourcesthataretransferabletothesebusinesses.EventhoughgreenhydrogenandCCUSareonlysettocontributetoacombined14%ofrevenueby2024e,onourestimates,theindirectpositiveimpactismorethanthat:weexpectCNCEC’sstrongfootinginCO2reductiontechnologytogiveitanadvantageinwinningnewchemicalprojectsgivenrisingemissionrequirementsbythegovernment.Upto40%ofCNCEC’snewordersarerelatedtoCO2reductionin2021,basedonourestimates.Tobesure,thesharepricehascorrectedby13.0%inthepastfourmonths(vs.a13.0%declineintheCSI300duringsameperiod),mainlybecauseofsluggishnewcontractgrowth(down13.9%in2H21).Butwebelievethemarkethasnotpricedinitshydrogenstory.Weexpectmorecarbon-reductionprojectscansmoothoutdownstreamchemicaloperators'capexcyclicality,whilemoresustainableself-operatingbusinesssuchasadiponitrileproductioncouldalsohelpreduceCNCEC’searningcyclicality(seebelow).OurnewtargetpriceofRMB15.60(previouslyRMB15.20)impliesc67%upsidefromthecurrentshareprice.WemaintainourBuyratingonthestock,givenimprovingearningsstabilityandlesscyclicalityfromitsengineering,procurementandconstruction(EPC)business,smoothedbyhydrogen,CCUSandothercarbonreductionsolutions.CNCECtobenefitfromgreenhydrogenandCCUSdevelopmentinChinaAsstatedabove,webelievegreenhydrogenandCCUScantogethercontribute14%ofCNCEC’srevenueby2024e.Ourestimatesareasfollows:Weassume7%ofChina’scarbonemissionsfromcoal-firedplants,petrochemicalprojects,andcoalchemicalprojectsarecapturedbyCCUSby2029e,sothatannualprojectspendingcanbeRMB33bnfrom2024-29e.IfCNCECtakesac30%marketshare,annualrevenuecontributiontoCNCECcouldbeRMB10bn.SinceCNCEChelpedwithGuohuaJinjieEnergycoal-firedpowerplantinJuly2021,whichhas150kton/yearcapacity,oneofthelargestCCUSprojectcompletedin2021,webelieveCNCENcouldmaintainacompetitivemarketshareof30%goingforward.WeassumeCNCECoccupiesc25%marketshareofChina’selectrolyserequipmentsystemannualspendingofRMB79bn(onourestimates)during2022-26e,sothatannualCNCEC(601117CH)ApioneerinundertakinggreenhydrogenandCCUSprojectsCNCEC’sstrongfootinginCO2reductiontechnologygivesitanadvantageinwinningnewchemicalprojectsMaintainBuywithRMB15.60TP(wasRMB15.20)EnergyTransition●EquitiesMarch202232revenuecontributiontoCNCECcouldbeRMB20bn.Wearriveatthismarketshareassumption,basedonourestimated2021marketsizeinChina(lessthan800MW)andthefactthatCNCENhelpedwithBaofeng’sinstalled200MWgreenhydrogenproject.WeassumeCNCENtomaintainalowermarketshareof25%goingforward.WebelieveCNCECpossessesstrengthinthisemergingmarketforthefollowingreasons:First-mover:NotableprojectsthatCNCEChascompletedincludegreenhydrogenprojectsforBaofengEnergyinMarch2021,thelargestsolar-hydrogenprojectgloballyatthetime,andaCCUSprojectforGuohuaJinjieEnergycoal-firedpowerplantinJuly2021.Overlappingclientbase:Givenchemicalprojectexperienceandadiverseclientbase,webelieveCNCECcansecuregreenhydrogenorCCUScontractswithexistingclients,mostofwhicharechemicalproducers.Activeintechnologyupgrade.CNCECisintegratingtechnologyintogreenhydrogenandchemicalproductionequipment,especiallyforthecoalchemicalindustry,accordingtocompanydisclosures.Meanwhile,CNCECisalsocooperatingwithLongiandsomeuniversitiestodevelophydrogenelectrolysersandpurificationequipment;Thecompanyisalsodevelopinghydrogenliquefactionequipment,aswellassynthesismethanoltechnology(wheregreenhydrogenandCO2istherawmaterial).CarbonreductionsolutionstosmoothoutcyclicalityChemical,petrochemical,andcoalchemicalsectorsaccountedfor33%/21%/20%ofCNCEC’s2020newcontracts,respectively.Theseareaswerecyclicalintermsofneworders.Thenotableorderincreasein2020and2021eforchemicalprojectswasmainlyaresultofchemicalcapacityexpansiontomeettherobustdownstreamdemandwhich,inturn,wasdrivenbyincreasingproductexportsfromChina.Upstreamchemicalcapacityexpansionmaynotnecessarilycontinuewhendownstreamproductexportgrowthslows.CNCEC’snewordersdecreased13.9%in2H21,ademonstrationofsuchcyclicality.However,webelievemorecarbon-reductionprojectscansmoothoutdownstreamchemicaloperators'capexcyclicality.Asdisclosedon11November2021,c40%ofCNCEC’snewordersin9M21werefromrenewableenergyandnewmaterialsectors,aswellasfromdemandinthechemicalandpetrochemicalsectorstoreducetheiremissions.Webelievethese,aswellasnewdemandfromgreenhydrogenandCCUS,couldhelptocounteractanypotentialdeclineincontractsfromtraditionalchemicalcapacities.WebelievegreenhydrogenandCCUScouldserveaseffectivesolutionsforCNCEC’sdownstreamchemicalproducer-solutionsthatallowthemtobuildnewcapacitywhilemeetingemissionrequirements,andresultinginneworderstoCNCEC.AdiponitrileprojectontrackAsdisclosedbythecompanyon9March2022,the200ktonne/yearadiponitrileprojectwillproducethefirstbatchofqualifiedproductinearlyApril.Adiponitrileisthemainrawmaterialrequiredfortheproductionofnylon66(usedinfibersfortheauto,apparelandelectronicsectors)andthecompany'snewprojectisthefirstlargeoneownedbyaChinesecompany.Withcompetitivecosts,webelievethenewprojectcouldenableawiderrangeofapplicationsfornylon66.Weexpecttheannual200ktonadiponitrilecapacitytocontributeRMB1651m,RMB3773mandRMB3302mnetprofitin2022e/23e/24erespectively.33EnergyTransition●EquitiesMarch2022Exhibit48.GreenhydrogenandCCUScouldtogethercontribute14%ofCNCEC’srevenueby2024eExhibit49.EarningscontributionfromadiponitriletoincreasesignificantlySource:Company,HSBCQianhaiSecuritiesestimatesSource:Company,HSBCQianhaiSecuritiesestimatesExhibit50.CNCEC’snewcontractbreakdownbysectorSource:Companydata,HSBCQianhaiSecuritiesestimatesExhibit51.CNCEC’scumulativenewcontractSource:Company,HSBCQianhaiSecurities050001000015000200002500030000350002021e2022e2023e2024eGreenhydrogenrevenueCCUSrevenueRMBmn02000400060008000100002022e2023e2024eNetprofitofadiponitrileproject(afterminority)Netprofit(ChinaNationalChemical)RMBmn97.982.072.963.070.595.1145.0227.2251.2269.80501001502002503002012201320142015201620172018201920202021eChemicalPetroleumChemicalCoalChemicalInfrastructureEnvironmentalOtherBusinessRMBbn51.276.70.020.040.060.080.0100.0120.0140.0160.0180.0200.0220.0240.0260.0280.0300.0JanFebMarAprMayJunJulAugSepOctNovDecCumulNCTotal2019CumulNCTotal2020CumulNCTotal2021CumulNCTotal2022RMBbEnergyTransition●EquitiesMarch202234What’schanged?AdjustingearningsestimatesWelowerour2021e,2022e,and2023eEPSestimatesby15.0%,6.0%and-1.0%,respectively.Thisismainlyaresultoflowerrevenueestimates,partiallyoffsetbyhighergrossmarginsin2022-23e.Welowerour2021erevenueestimatesby14%,mainlytoreflectslower-than-expectedadiponitrilecapacitycompletion.Welowerour2022-23erevenueestimatesby15%and11%,respectively,toreflectlower-than-expectednewcontractsin2H21(down13.9%y-o-y),partiallyoffsetbyamoreoptimisticoutlookongreenhydrogen,CCUSandothercarbonreduction-relatedprojectsin2022-23e.Thehighergrossmarginassumptionstemsfromarosieroutlookonadiponitrileprojectswhichhavehighermarginsin2022-23e.Exhibit52.Earningsestimatechanges__________2021e____________________2022e_____________________2023e___________RMBmOldNewChangesOldNewchangesOldNewChangesRevenue160,968137,696-14%194,308165,657-15%220,717196,412-11%Grossprofit16,48514,053-15%20,24618,229-10%23,47023,5450%Netprofit4,9944,233-15%6,4806,079-6%7,7907,742-1%EPS0.780.66-15%1.010.95-6%1.211.21-1%ROE11.2%9.6%-1.6ppt12.0%11.4%-0.6ppt13.1%13.2%0.1pptSource:Company,HSBCQianhaiSecuritiesestimatesExhibit53.Earningssensitivitytoadiponitrileprice____________________Earningssensitivity_____________________2021e2022e2023ePriceofadiponitrile(RMB/tonne)40,0000.0%38.6%64.2%35,0000.0%30.9%51.4%30,0000.0%0.0%0.0%25,0000.0%-15.4%-25.7%20,0000.0%-7.7%-12.8%Source:Companydata,HSBCQianhaiSecuritiesestimatesValuationandtargetpriceWecontinuetouseaPBmultipletovaluethestock,androlloverourvaluationbaseyear.Ournewtargetpriceisbasedona1.8xone-yearforwardPB(1SDaboveitshistoricalaverage,unchanged)andour2022eBVPSestimatesofRMB8.67(previouslyanaverageofRMB8.43in2021-22e).WebelievethestockdeservesapremiumtoitshistoricalPBlevel1.4xsince2010,consideringitsimprovingROEoutlook(2021-23eROEof9.6-13.2%,abovethehistoricalaverageof10.8%since2010).Thestockistradingata1.1x2022ePB,andlowerthanthec2.0xlevelduringaperiodofhighearningsgrowthin2010-12(36%CAGR)andthebullmarketin2015.OurtargetpriceofRMB15.60(previouslyRMB15.20)impliesc67%upsidefromthecurrentshareprice.WemaintainourBuyratingonthestock,givenimprovingearningsstabilityandpotentialupsidefromthehydrogenbusiness.Potentialsharepricecatalysts:Ramp-upofadiponitrilecapacity,newself-operatingchemicalprojectlaunches,SOEreform-ledindustryconsolidation,andmajorhydrogen-relatedprojectwins.Keydownsiderisks:Fluctuationsincrudeoilprices;chemicalindustrycapexcuts;foreignexchangerisks;lower-than-expectedadiponitrilecapacityramp-up;lower-than-expecteddevelopmentinhydrogenandCCUSbusiness35EnergyTransition●EquitiesMarch2022Exhibit54.CNCEC:HistoricalPB-ROESource:Wind,HSBCQianhaiSecuritiesestimatesExhibit55.CNCEC:HistoricalPESource:Wind,HSBCQianhaiSecuritiesestimates0.0%5.0%10.0%15.0%20.0%0.00.51.01.52.02.53.03.5Jan-10Dec-10Nov-11Oct-12Sep-13Aug-14Jul-15Jun-16May-17Apr-18Mar-19Feb-20Jan-21Dec-21Nov-221-yrforwardPBAverage+1SD-1SDROE(RHS)(x)2022e2023e0.05.010.015.020.025.030.0Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19Jan-20Jan-21Jan-221-yrforwardPEAverage+1Std-1Std(x)EnergyTransition●EquitiesMarch202236FinancialstatementsYearto12/2020a12/2021e12/2022e12/2023eProfit&losssummary(CNYm)Revenue109,995137,696165,657196,412EBITDA6,9847,0089,71412,870Depreciation&amortisation-1,134-1,010-1,010-226Operatingprofit/EBIT5,8505,9988,70412,644Netinterest-532-222-145-150PBT4,5445,2868,09111,901HSBCQianhaiPBT4,5445,2868,09111,901Taxation-702-841-1,288-1,894Netprofit3,6594,2336,0797,742HSBCQianhainetprofit3,6594,2336,0797,742Cashflowsummary(CNYm)Cashflowfromoperations8,32916,48316,98219,794Capex-878-4,000-3,000-2,000Cashflowfrominvestment-1,466-4,000-3,000-2,000Dividends-1,100-1,273-1,828-2,328Changeinnetdebt-5,584-21,382-12,709-15,966FCFequity7,45112,48313,98217,794Balancesheetsummary(CNYm)Intangiblefixedassets2,3872,3872,3872,387Tangiblefixedassets11,87314,86316,85318,627Currentassets105,926131,313152,102177,254Cash&others38,86856,25168,96085,226Totalassets136,008164,385187,164214,090Operatingliabilities85,965104,996122,244140,690Grossdebt9,2925,2925,2925,592Netdebt-29,576-50,958-63,668-79,634Shareholders'funds37,66150,79455,60061,514Investedcapital-4,646-12,683-19,862-27,648Ratio,growthandpershareanalysisYearto12/2020a12/2021e12/2022e12/2023eY-o-y%changeRevenue5.625.220.318.6EBITDA9.20.338.632.5Operatingprofit9.72.545.145.3PBT16.216.353.147.1HSBCQianhaiEPS19.510.243.627.3Ratios(%)Revenue/IC(x)-31.6-15.9-10.2-8.3ROIC-142.1-58.2-45.0-44.8ROE10.19.611.413.2ROA3.13.03.95.0EBITDAmargin6.35.15.96.6Operatingprofitmargin5.34.45.36.4EBITDA/netinterest(x)13.131.667.285.6Netdebt/equity-72.6-94.2-106.8-117.5Netdebt/EBITDA(x)-4.2-7.3-6.6-6.2CFfromoperations/netdebtPersharedata(CNY)EPSRep(diluted)0.600.660.951.21HSBCQianhaiEPS(diluted)0.600.660.951.21DPS0.220.200.290.36Bookvalue6.167.928.679.59ValuationdataYearto12/2020a12/2021e12/2022e12/2023eEV/sales0.20.0-0.0-0.1EV/EBITDA3.90.9-0.7-1.8EV/ICPE15.614.19.87.7PB1.51.21.11.0FCFyield(%)13.121.924.531.2Dividendyield(%)2.42.13.13.9BasedonHSBCQianhaiEPS(diluted)ESGmetricsEnvironmentalIndicators12/2020aGovernanceIndicators12/2021aGHGemissionintensityn/aNo.ofboardmembers8Energyintensityn/aAverageboardtenure(years)n/aCO2reductionpolicyNoFemaleboardmembers(%)0SocialIndicators12/2020aBoardmembersindependence(%)37.5Employeecostsas%ofrevenues6.4Employeeturnover(%)n/aDiversitypolicyNoSource:Companydata,HSBCQianhaiSecuritiesGHGintensityandenergyintensityaremeasuredinkgandkWhrespectivelyagainstrevenueinUSD‘000sIssuerinformationShareprice(CNY)9.33Freefloat31%Targetprice(CNY)15.60SectorMachineryRIC(Equity)601117.SSCountry/RegionChinaBloomberg(Equity)601117CHAnalystDunWangMarketcap(USDm)8,953Contact+862160813827PricerelativeSource:HSBCQianhaiSecuritiesNote:Pricedatcloseof22Mar20222.704.706.708.7010.7012.7014.7016.702.704.706.708.7010.7012.7014.7016.70202020212022ChinaNationalChemicalReltoCSI300IndexFinancials&valuation:ChinaNationalChemicalBuy37EnergyTransition●EquitiesMarch2022InvestmentcaseInvestmentsummaryLongiisboththelargestwafersupplierandmodulesupplierglobally,intermsof2021salesvolumes.Wealsoseepotentialupsidefrombetter-than-expectedcontributionfromitsgreenhydrogenequipmentbusiness.LongistartedR&Dongreenhydrogenin2018andaimstobecometheleadinghydrogenequipmentsupplierglobally.Longicanleverageitslowersolarsystemcoststowinmoreordersingreenhydrogensolutions,webelieve.InApril2021,LongienteredintoanagreementwithChineseoilandgasconglomerateSinopecGrouptocooperateongreenhydrogen(Bloomberg,16April2021).AsofOctober2021,thecompanyhas500MWofmanufacturingcapacityinelectrolysersandsaiditwillexpandthisto5-10GWinfiveyears(Sohu,17October2021).Assuming5GWinannualdelivery,weestimatethattheelectrolysersystembusinesscouldaccountfor5-9%ofLongi’srevenueinfiveyears.ValuationandtargetpriceWebaseourtargetpriceofRMB72.60(unchanged)onaDCFvaluationmodel.Keyassumptionsare:(1)costofequityof9.0%(unchanged),derivedfromarisk-freerateof2.0%,amarketriskpremiumof6.0%andabetaof1.16.(allunchanged),(2)after-taxcostofdebtof4.3%(unchanged),(3)debt-to-capitalratioof12%(unchanged),(4)operatingcashflow(beforechangesinworkingcapital)CAGRof12%(unchanged)in2020-29e,(5)capexofRMB15.8bnin2021e,RMB7.4bnin2022e,andRMB7.3bnin2023e,andRMB2-5bn(unchanged)peryearin2024-29e,and(6)aterminalgrowthrateof2%(unchanged).With9.8%downsidefromthecurrentsharepricetoourtargetprice,wemaintainourHoldratingonthestock,asweseegreatpotentialinitsgreenhydrogenequipmentbusiness.Keyupsiderisks:Higher-than-expectedwaferscostreductionsinnon-Siliconparts,faster-than-expectedwafercapacityexpansion,andbetter-than-expectedwaferdemand.Keydownsiderisks:Weaker-than-expectedphotovoltaic(PV)demand,equitydilutionfromapotentialfundraisingexercise,andgreater-than-expectedcutstowaferASPs.Longi(601012CH)Thelargestwafersupplierandmodulesuppliergloballyin2021Planstoexpanditselectrolysercapacityto5-10GWinfiveyearsMaintainHoldwithtargetpriceunchangedatRMB72.60EnergyTransition●EquitiesMarch202238Exhibit56.Longi:EarningssensitivitytopolysiliconandwaferASPchanges(2022e)______________________________________Polysilicon_______________________________________Wafer-15%-10%-5%0%5%10%15%20%79%70%60%51%42%33%24%15%66%57%48%38%29%20%11%10%53%44%35%26%16%7%-2%5%40%31%22%13%4%-6%-15%0%28%18%9%0%-9%-18%-28%-5%15%6%-4%-13%-22%-31%-40%-10%2%-7%-16%-26%-35%-44%-53%-15%-11%-20%-29%-38%-48%-57%-66%-20%-24%-33%-42%-51%-60%-70%-79%Note:HSBCQianhaiSecuritiesestimatesExhibit57.Longi’s12-monthforwardPEExhibit58.Longi’shistoricalPBvsROESource:Companydata,HSBCQianhaiSecuritiesestimatesSource:Companydata,HSBCQianhaiSecuritiesestimates-5.010.015.020.025.030.035.040.045.050.0Jan-13Jan-15Jan-17Jan-19Jan-21PEMean+1SD-1SD-1.002.003.004.005.006.007.008.009.000%5%10%15%20%25%30%35%2016201820202022EROE(LHS)PB39EnergyTransition●EquitiesMarch2022Exhibit59.Longi:DiscountedcashflowvaluationRMBm2015201620172018201920202021e2022eProfitaftertax5211,5513,5492,5675,5578,70010,55611,865YoYgrowth198%129%-28%117%57%21%12%Add:Depreciation&amortisation2854267481,2061,4992,2301,5661,910Netfinanceexpense888332637118138580176OperatingcashflowbeforeW/Cchanges8932,0604,6234,1447,23811,31512,20213,951Changesinworkingcapital-656-1,766-2,860-2,917447-272-6,9121,559Netoperatingcashflow2372941,7631,2277,68511,0435,28915,509CAPEX-1,216-2,152-3,774-3,169-2,753-5,171-15,840-7,400FreeCashFlow-979-1,858-2,011-1,9424,9325,872-10,5518,109DiscountFactorGrossPPE3,6175,98112,81416,23919,62331,38932,28845,140DepreciationRate8%7%6%7%8%7%5%4%PVofFCFRMBm2023e2024e2025e2026e2027e2028e2029eTerminalValueProfitaftertax12,18913,39816,07719,29322,18725,51528,066YoYgrowth3%10%20%20%15%15%10%Add:Depreciation&amortisation2,4522,8802,9953,1123,2303,3493,470Netfinanceexpense-12-75-78-81-84-87-91OperatingcashflowbeforeW/Cchanges14,62916,20218,99522,32425,33328,77731,445Changesinworkingcapital-1,120-1,1900000Netoperatingcashflow13,50815,01218,99522,32425,33328,77731,445CAPEX-7,250-5,300-2,500-2,525-2,550-2,576-2,602FreeCashFlow6,2589,71216,49519,79922,78226,20128,844460,093DiscountFactor1.000.920.850.790.720.670.620.62GrossPPE53,98062,24864,74867,27369,82372,39975,001DepreciationRate5%5%5%5%5%5%5%PVofFCF6,2588,96014,03915,54616,50317,51017,783283,662SummaryofPV(EnterpriseValue)380,261Less:Netdebt(incl.perpetual)20,408Equityvalue400,669Less:Minorityinterest-1,463ShareholderEquityValue399,206Totalshareissuedbyyear-end20225,498PerShareValue-RMB72.60AssumptionsRiskfreerate2.0%ERPch6.0%Beta1.16Costofequity=RFR+BETAERPch9.0%Costofdebt5.0%Incometax15%Aftertaxcostofdebt4.3%Debt/Capital12%WACC8.4%TerminalGrowth2%Source:Wind,Companydata,HSBCQianhaiSecuritiesestimatesEnergyTransition●EquitiesMarch202240FinancialstatementsYearto12/2020a12/2021e12/2022e12/2023eProfit&losssummary(CNYm)Revenue54,583111,820119,120107,578EBITDA12,52113,92515,65316,666Depreciation&amortisation-2,230-1,566-1,910-2,452Operatingprofit/EBIT10,29012,35913,74314,214Netinterest-378-80-17612PBT9,91212,28013,56714,225HSBCQianhaiPBT9,91212,28013,56714,225Taxation-1,212-1,724-1,702-2,037Netprofit8,55210,06811,38311,611HSBCQianhainetprofit8,55210,06811,38311,611Cashflowsummary(CNYm)Cashflowfromoperations11,0154,50113,29012,862Capex-5,171-15,840-7,400-7,250Cashflowfrominvestment-5,171-15,840-7,400-7,250Dividends-2,051-1,222-1,439-1,626Changeinnetdebt-3,6357,641-11,276-3,998FCFequity5,844-11,3395,8905,612Balancesheetsummary(CNYm)Intangiblefixedassets774759744730Tangiblefixedassets26,98541,27446,77951,591Currentassets55,10187,313101,68898,870Cash&others26,96719,32629,60233,600Totalassets87,635134,909156,994159,619Operatingliabilities43,12376,06481,72273,785Grossdebt8,9138,9137,9137,913Netdebt-18,054-10,413-21,689-25,686Shareholders'funds35,10648,95165,89675,881Investedcapital12,76933,95537,88743,806Ratio,growthandpershareanalysisYearto12/2020a12/2021e12/2022e12/2023eY-o-y%changeRevenue65.9104.96.5-9.7EBITDA56.611.212.46.5Operatingprofit58.420.111.23.4PBT58.723.910.54.9HSBCQianhaiEPS10.214.811.32.0Ratios(%)Revenue/IC(x)4.74.83.32.6ROIC79.345.533.529.8ROE27.324.019.816.4ROA11.89.58.17.7EBITDAmargin22.912.513.115.5Operatingprofitmargin18.911.111.513.2EBITDA/netinterest(x)33.1174.688.9Netdebt/equity-50.7-20.9-32.2-33.0Netdebt/EBITDA(x)-1.4-0.7-1.4-1.5CFfromoperations/netdebtPersharedata(CNY)EPSRep(diluted)1.621.862.072.11HSBCQianhaiEPS(diluted)1.621.862.072.11DPS0.230.270.300.30Bookvalue6.659.0411.9913.80ValuationdataYearto12/2020a12/2021e12/2022e12/2023eEV/sales7.73.83.53.8EV/EBITDA33.430.626.424.6EV/IC32.712.610.99.4PE49.743.338.938.1PB12.18.96.75.8FCFyield(%)1.3-2.61.41.3Dividendyield(%)0.30.30.40.4BasedonHSBCQianhaiEPS(diluted)ESGmetricsEnvironmentalIndicators12/2020aGovernanceIndicators12/2021aGHGemissionintensityn/aNo.ofboardmembers10Energyintensity773.1Averageboardtenure(years)7.1CO2reductionpolicyYesFemaleboardmembers(%)30SocialIndicators12/2020aBoardmembersindependence(%)30Employeecostsas%ofrevenues8.1Employeeturnover(%)n/aDiversitypolicyYesSource:Companydata,HSBCQianhaiSecuritiesGHGintensityandenergyintensityaremeasuredinkgandkWhrespectivelyagainstrevenueinUSD‘000sIssuerinformationShareprice(CNY)80.49Freefloat73%Targetprice(CNY)72.60SectorEnergyEquipmentRIC(Equity)601012.SSCountry/RegionChinaBloomberg(Equity)601012CHAnalystCoreyChanMarketcap(USDm)68,435Contact+862160813801PricerelativeSource:HSBCQianhaiSecuritiesNote:Pricedatcloseof22Mar20225.3025.3045.3065.3085.30105.305.3025.3045.3065.3085.30105.30202020212022LongiGreenReltoCSI300IndexFinancials&valuation:LongiGreenHold41EnergyTransition●EquitiesMarch2022InvestmentcaseInvestmentsummaryChinaMetallurgicalGroupCorporation(MCC)isthelargestmetallurgicalengineeringandconstruction(E&C)contractorinChina(c90%marketshare)andglobally(c60%marketshare).Metallurgicalconstructionaccountedforaround13%ofMCC’snewE&Ccontractsin2021.Mostofthemetallurgicalprojectsareforsteelproduction,whichwebelievewillstarttousehydrogen(weassume5%ofthesteelinChinawillusehydrogeninsteadofcarbonmonoxideby2027e).WebelieveMCCwillbenefitfromhydrogen’sapplicationinthesteelindustry.On18May2021,MCCdisclosedithashelpedChineseironandsteelmanufacturingconglomerateHbisGrouptodesignitshydrogen-steelpilotprojectinZhangjiakou.Theproject,oncecompleted,couldreduceCO2emissionby60%,accordingtothecompanyMCC.MCCsaysitattachesstrategicimportancetothedevelopmentoftechnologythatcanbeusedfortheapplicationofhydrogeninsteelproduction.ValuationandtargetpriceOurTPisbasedonasum-of-the-partsapproach.Engineering&construction:Wevaluethisdivisionbyapplyinga2023ePEmultipleof10x(unchanged),whichisclosetothehistoricalaverageofglobalE&Cpeers.Propertydevelopment:Wevaluethisdivisionbyapplyinga2023ePEmultipleof7x(unchanged),whichisclosetothehistoricalaverageofindustrypeers.Resourcesdevelopment:WevaluethisdivisionusingDCF.OurWACCassumptionis7.9%(unchanged).Equipmentmanufacturing:Wevaluethisdivisionbyapplyinga2023eEV/EBITDAmultipleof6x(unchanged),whichisclosetothehistoricalaverageofindustrypeers.WekeepourtargetpriceunchangedatRMB7.20.OurTPimplies88%upsidefromcurrentlevels,andwemaintainourBuyratingonthestock.Exhibit60.MCC:Earningssensitivitytogrossmarginandrevenuechange(2022e)_____________________________________GrossMargin______________________________________Revenue-3ppt-2ppt-1ppt0ppt+1ppt+2ppt+3ppt+20%-97%-51%-5%40%86%132%178%+15%-101%-57%-14%30%74%118%162%+10%-106%-64%-22%20%62%104%146%+5%-110%-70%-30%10%50%90%130%0%-114%-76%-38%0%38%76%114%-5%-119%-83%-46%-10%26%62%99%-10%-123%-89%-54%-20%14%48%83%-15%-127%-95%-63%-30%2%35%67%-20%-132%-101%-71%-40%-10%21%51%Source:Company,HSBCQianhaiSecuritiesMCC(601618CH)LargestmetallurgicalE&CcontractorinChina(c.90%marketshare)Completeddesignofahydrogen-steelpilotprojectMaintainBuywithTPunchangedatRMB7.20EnergyTransition●EquitiesMarch202242Sharepricecatalysts:1)Newinfrastructureorders;2)newmetallurgicalorders;and3)speed-upintheissuanceoflocalgovernmentspecialbonds(LGSB).Keydownsiderisks:1)Aslowdowninmetallurgicalinvestment;2)weaker-than-expectedmarginsonintensifyingcompetition;3)higher-than-expectedcapexinmining;4)projectdelaysorcancellations;and5)profitvolatilityfromnon-recurringitems.Exhibit61.MCC:12-monthforwardPEExhibit62.MCC:HistoricalPBvs.ROESource:Wind,HSBCQianhaiSecuritiesestimatesSource:Wind,HSBCQianhaiSecuritiesestimatesExhibit63.MCC:Sum-of-partsanalysisRMBmFairValueBusinessValuationProcedure%Stake2022e%Engineering&ConstructionPE-10x2023eVarious160,39985%PropertyDevelopmentPE-7x2023eVarious14,1658%ResourceDevelopmentDCF@WACCof7.9%Various8,5935%EquipmentManufacturingEV/EBITDA-6x2023eVarious4,4522%GrossAssetValue187,609100%Less:NetDebt(incl.perpetual)End2022e-38,250TotalEquityValue149,359/No.ofShares20,724FairValue(RMB)7.20Source:Companydata,Wind,HSBCQianhaiSecuritiesestimates-5.010.015.020.025.030.035.040.045.0Jan-13Jan-15Jan-17Jan-19Jan-21PEMean+1SD-1SD0%2%4%6%8%10%12%0.000.200.400.600.801.001.201.401.602016201820202022EPB(LHS)ROE43EnergyTransition●EquitiesMarch2022FinancialstatementsYearto12/2020a12/2021e12/2022e12/2023eProfit&losssummary(CNYm)Revenue400,115535,130626,705711,580EBITDA17,30620,22623,45526,466Depreciation&amortisation-3,622-3,081-3,243-3,470Operatingprofit/EBIT13,68517,14520,21222,996Netinterest-1,767-2,468-2,624-2,413PBT11,91714,67717,58820,583HSBCQianhaiPBT11,91714,67717,58820,583Taxation-2,535-3,452-4,153-4,867Netprofit7,1138,64110,49312,404HSBCQianhainetprofit7,1138,64110,49312,404Cashflowsummary(CNYm)Cashflowfromoperations28,0328,31115,82118,386Capex-12,287-5,913-7,095-7,805Cashflowfrominvestment-12,287-5,913-7,095-7,805Dividends-900-2,653-3,058-3,475Changeinnetdebt-26,5464,460-1,526-3,240FCFequity15,7442,3988,72610,581Balancesheetsummary(CNYm)Intangiblefixedassets17,49217,01616,54016,064Tangiblefixedassets35,19338,50142,83047,640Currentassets389,254445,780484,237519,844Cash&others55,39345,93342,45940,699Totalassets506,393567,030610,682652,034Operatingliabilities297,209354,275392,550426,662Grossdebt67,91162,91157,91152,911Netdebt14,81619,27617,75014,510Shareholders'funds97,892104,644112,844122,538Investedcapital89,336101,089108,597116,187Ratio,growthandpershareanalysisYearto12/2020a12/2021e12/2022e12/2023eY-o-y%changeRevenue18.233.717.113.5EBITDA10.516.916.012.8Operatingprofit11.425.317.913.8PBT21.823.219.817.0HSBCQianhaiEPS35.321.521.418.2Ratios(%)Revenue/IC(x)4.35.66.06.3ROIC11.914.215.115.9ROE9.59.59.610.5ROA1.92.12.32.5EBITDAmargin4.33.83.73.7Operatingprofitmargin3.43.23.23.2EBITDA/netinterest(x)9.88.28.911.0Netdebt/equity10.612.911.18.5Netdebt/EBITDA(x)0.91.00.80.5CFfromoperations/netdebt189.243.189.1126.7Persharedata(CNY)EPSRep(diluted)0.340.420.510.60HSBCQianhaiEPS(diluted)0.340.420.510.60DPS0.070.090.110.13Bookvalue3.735.055.455.91ValuationdataYearto12/2020a12/2021e12/2022e12/2023eEV/sales0.30.20.20.2EV/EBITDA7.36.55.75.0EV/IC1.41.31.21.1PE11.29.27.66.4PB1.00.80.70.6FCFyield(%)23.03.512.815.5Dividendyield(%)2.02.42.93.4BasedonHSBCQianhaiEPS(diluted)ESGmetricsEnvironmentalIndicators12/2020aGovernanceIndicators12/2021aGHGemissionintensity51.8No.ofboardmembers7Energyintensity160.9Averageboardtenure(years)6.8CO2reductionpolicyYesFemaleboardmembers(%)0SocialIndicators12/2020aBoardmembersindependence(%)42.9Employeecostsas%ofrevenues5.1Employeeturnover(%)3.4DiversitypolicyYesSource:Companydata,HSBCQianhaiSecuritiesGHGintensityandenergyintensityaremeasuredinkgandkWhrespectivelyagainstrevenueinUSD‘000sIssuerinformationShareprice(CNY)3.83Freefloat24%Targetprice(CNY)7.20SectorConstruction&EngineeringRIC(Equity)601618.SSCountry/RegionChinaBloomberg(Equity)601618CHAnalystCoreyChanMarketcap(USDm)10,740Contact+862160813801PricerelativeSource:HSBCQianhaiSecuritiesNote:Pricedatcloseof22Mar20221.502.503.504.505.501.502.503.504.505.50202020212022MCCAReltoCSI300IndexFinancials&valuation:MCCABuyEnergyTransition●EquitiesMarch202244InvestmentcaseInvestmentsummarySinopecOilEquipmentcanbenefitfromtheaggressivecarbonreductioneffortsbyitslargestcustomerandcontrollingshareholder,SinopecGroup.However,asitssharepricehasrisenby47%inthepastyear,outperformingtheOilfieldServicesIndexwhichrose10.5%duringthesameperiod(comprising11A-sharelistedoilfieldservicesproviders),webelievetheimprovingprospectforitshydrogenbusinesshasbeenpricedin.Meanwhile,weremaincautiousonSinopecOilEquipment’sgrowthprospectsasithasyettoproveitscompetitivenessinoilfieldequipmentorhydrogenproducts.WeraiseourtargetpricetoRMB6.40fromRMB5.60andmaintainourHoldrating.CompressormakerfindsnewgrowthdriversOneofthekeypiecesofequipmentthatSinopecOilEquipmentmanufacturesiscompressorsusedinnaturalgasextraction.Itdisclosedon10January2022thatitnowfocusesontheR&Dofhydrogencompressorsforhydrogenrefuelingstations,hydrogenpurificationequipmentandotherkeyhydrogen-relatedequipment.Webelievethecompanywillbenefitfromtheaggressivecarbonreductioneffortsbyitslargestcustomerandcontrollingshareholder,SinopecGroup.OtherthangreenhydrogenandCCUS,SinopecOilEquipmentcanalsogenerateadditionalrevenuefromhydrogencompressorsforhydrogenrefuelingstations,ofwhichSinopechasannounced(on27April2021)itwillbuildathousandunitsduringthe14thFive-YearPlanperiod.AssumingthecompressorispricedatRMB6mn/station,1,000stationsimpliesaRMB6bnmarketorRMB1.2bnannualspending(duringfiveyears).IfSinopecOilEquipmentcansecurea30%marketshare,therefuelingstationcompressoralonecouldcontributeupto6%ofitsRMB6213mnrevenuein2020.AccordingtoLeadingIndustryresearch,SinopecOilfieldEquipmenthad25%-30%marketshareindomesticoil/gasfracturingequipment.Webelievethecompanycouldobtainsimilarmarketshareof30%inthehydrogenstationcompressormarket.CapacityupgradeviaprivateplacementOn30November2021,SinopecOilEquipment’sRMB1bnprivateplacementplanwasapprovedbytheChinaSecuritiesRegulatoryCommission.AstheprivateplacementhasnotSinopecOilfieldEquipment(000852CH)SinopecOilEquipmentisSinopecGroup’sin-houseoilandgasequipmentmanufacturerSinopecOilEquipmenttobenefitfromaggressivecarbonreductioneffortsbylargestcustomer+controllingshareholder,SinopecGroupMaintainHoldwithTPRMB6.40(wasRMB5.60)45EnergyTransition●EquitiesMarch2022beencompleted,wedonotfactoritintoourmodel.Thecompanyplanstousethefundstodevelopitselectricdrivefracturingsolutionbusiness(insteadofmerelyprovidingthefracturingequipment)andtoupgradeitsexistingmanufacturingcapacities.ThecompanyestimatesthenewprojectscouldbringinanadditionalannualrevenueofRMB530mandnetprofitofRMB76m.Atthesametime,assumingthecompanyraisesthefundsatRMB6.45/sharebasedontherecentshareprice,weestimatetheprivateplacement(ifsuccessfullyexecuted)coulddilutecurrentownershipby20%.RemainconservativeWeremaincautiousonthecompany’sgrowthprospectforthefollowingreasons:1)Sinopec’scapexwouldshrinkin2022-23e,webelieve,inlinewithBloombergconsensus.ThislimitsthegrowthpotentialofSinopecOilfieldEquipment’straditionalbusiness.2)SinopecOilfieldEquipmenthasyettoproveitscapabilityorcompetitivenessinmanufacturinghydrogenequipment.3)Intheoil&gasfracturingequipmentsector,Jereh(002353CH,RMB46.31,Buy)hadamuchbetterfinancialperformancethanSinopecOilfieldin2016-21,withhigherrevenuegrowthandgrossmargin.Thisindicatesthecompany’sR&Dandproductionefficiencyhasroomforimprovement.What’schanged?AdjustingearningsestimatesWeraiseour2022-23eEPSestimatesby15.0%and12.0%,respectively.Thisisaresultofhigherrevenueestimates;weraiseour2022-23erevenueestimatesby3%and7%,respectively,toreflectthecompany’splantodevelopitshydrogenbusiness.Ourearningsestimateschangeismorethanrevenueestimatechange,duetooperatingleverage.Valuationandtargetprice:WeraiseourtargetpricetoRMB6.40fromRMB5.60,mainlytoreflectourhigherearningsestimatesin2022-23e.Weapplya12-monthforwardmultipleof2.65x(previously2.32x)toouraverage2021-22eBVPSestimateofRMB2.40(unchanged).Ourtargetmultipleis20%below(previously30%)thestock’shistoricalaverageof3.31xbetween2015andAugust2020.Weraisethetargetmultipleto20%belowthehistoricalaverage(30%belowpreviously),giventhehigherROEprojection(2022eROEof2.1%vs1.9%previously).WemaintainourHoldratingonthestock.Keyupsiderisks:1)Stronger-than-expectedshalegasdevelopmentinChina;2)faster-than-expectedoverseasexpansion;3)ahigher-than-expectedcrudeoilprice;4)larger-than-expectedupstreamcapexbytheChinaoilmajors;and5)stronger-than-expecteddevelopmentofhydrogenbusiness.Keydownsiderisks:1)Slowdowninshalegasandoilfieldequipment,2)intensecompetition,3)workingcapitalmanagementrisks,and4)weaker-than-expecteddevelopmentofthehydrogenbusiness.Exhibit64.Earningsestimatechanges__________2021e_____________________2022e_______________________2023e___________RMBmOldNewchangesOldNewchangesOldNewchangesRevenue6,3886,3880%6,8767,0703%6,9457,3997%Grossprofit1,1321,1320%1,2231,2533%1,2291,3016%GPM17.7%17.7%0.0%17.8%17.7%-0.1%17.7%17.6%-0.1%Netprofit36360.0%354015%374212%EPS0.0460.0460.0%0.0450.05115%0.0480.05312%Source:Companydata,HSBCQianhaiSecuritiesestimatesEnergyTransition●EquitiesMarch202246Exhibit65.EPSsensitivitytosegmentrevenuegrowth__________EPSchanges_________2021e2022e2023eSalesofoilfieldmachinerygrowthrateare5ppthigherthanourestimates17.10%14.30%12.30%Salesofoilandgaspipelinegrowthrateare5ppthigherthanourestimates-14.00%-10.70%-8.40%Source:HSBCQianhaiSecuritiesestimatesExhibit66.SinopecOilfieldEquipmenthistoricalPB/ROEtrendSource:Bloomberg,HSBCQianhaiSecuritiesestimates-50%-40%-30%-20%-10%0%10%0.01.02.03.04.05.06.07.08.09.0Sep-15Apr-16Nov-16Jun-17Jan-18Aug-18Mar-19Oct-19May-20Dec-20Jul-21Feb-22Sep-221-yrforwardPBAverage+1SD-1SDROE(RHS)(x)2022e47EnergyTransition●EquitiesMarch2022FinancialstatementsYearto12/2020a12/2021e12/2022e12/2023eProfit&losssummary(CNYm)Revenue6,2136,3887,0707,399EBITDA341332353347Depreciation&amortisation-175-169-165-162Operatingprofit/EBIT166163188185Netinterest-147-122-127-122PBT4995106110HSBCQianhaiPBT4995106110Taxation-18-35-39-41Netprofit7364042HSBCQianhainetprofit7364042Cashflowsummary(CNYm)Cashflowfromoperations225183-518325Capex-105-108-119-125Cashflowfrominvestment-45-108-1190Dividends0000Changeinnetdebt-231-98262-154FCFequity12076-637201Balancesheetsummary(CNYm)Intangiblefixedassets91919191Tangiblefixedassets1,3081,2471,2011,163Currentassets6,7167,2837,6787,927Cash&others99498235389Totalassets8,2058,7109,0599,270Operatingliabilities2,7672,9123,1953,337Grossdebt3,4743,7743,7743,774Netdebt3,3753,2773,5393,385Shareholders'funds1,8091,8451,8851,927Investedcapital5,2495,2105,5395,455Ratio,growthandpershareanalysisYearto12/2020a12/2021e12/2022e12/2023eY-o-y%changeRevenue-5.72.810.74.7EBITDA25.9-2.66.2-1.5Operatingprofit73.6-1.715.1-1.2PBT-22.595.111.44.3HSBCQianhaiEPS-71.5403.611.44.3Ratios(%)Revenue/IC(x)1.21.21.31.3ROIC2.02.02.22.1ROE0.42.02.12.2ROA0.40.70.70.8EBITDAmargin5.55.25.04.7Operatingprofitmargin2.72.62.72.5EBITDA/netinterest(x)2.32.72.82.8Netdebt/equity171.9162.0169.3156.8Netdebt/EBITDA(x)9.99.910.09.7CFfromoperations/netdebt6.75.69.6Persharedata(CNY)EPSRep(diluted)0.010.050.050.05HSBCQianhaiEPS(diluted)0.010.050.050.05DPS0.000.000.000.00Bookvalue2.332.372.422.48ValuationdataYearto12/2020a12/2021e12/2022e12/2023eEV/sales1.31.31.21.1EV/EBITDA24.424.724.023.9EV/IC1.61.61.51.5PE700.0139.0124.8119.7PB2.82.72.62.6FCFyield(%)2.41.5-12.84.0Dividendyield(%)0.00.00.00.0BasedonHSBCQianhaiEPS(diluted)ESGmetricsEnvironmentalIndicators12/2020aGovernanceIndicators12/2021aGHGemissionintensityn/aNo.ofboardmembers8Energyintensityn/aAverageboardtenure(years)n/aCO2reductionpolicyNoFemaleboardmembers(%)12.5SocialIndicators12/2020aBoardmembersindependence(%)37.5Employeecostsas%ofrevenues16.1Employeeturnover(%)n/aDiversitypolicyNoSource:Companydata,HSBCQianhaiSecuritiesGHGintensityandenergyintensityaremeasuredinkgandkWhrespectivelyagainstrevenueinUSD‘000sIssuerinformationShareprice(CNY)6.40Freefloat41%Targetprice(CNY)6.40SectorEnergyEquipmentRIC(Equity)000852.SZCountry/RegionChinaBloomberg(Equity)000852CHAnalystDunWangMarketcap(USDm)782Contact+862160813827PricerelativeSource:HSBCQianhaiSecuritiesNote:Pricedatcloseof22Mar20222.003.004.005.006.007.008.009.002.003.004.005.006.007.008.009.00202020212022SinopecOilEquipmentReltoCSI300IndexFinancials&valuation:SinopecOilEquipmentHoldEnergyTransition●EquitiesMarch202248DisclosureappendixAnalystCertificationThefollowinganalyst(s),economist(s),orstrategist(s)whois(are)primarilyresponsibleforthisreport,includinganyanalyst(s)whosename(s)appear(s)asauthorofanindividualsectionorsectionsofthereportandanyanalyst(s)namedasthecoveringanalyst(s)ofasubsidiarycompanyinasum-of-the-partsvaluationcertifies(y)thattheopinion(s)onthesubjectsecurity(ies)orissuer(s),anyviewsorforecastsexpressedinthesection(s)ofwhichsuchindividual(s)is(are)namedasauthor(s),andanyotherviewsorforecastsexpressedherein,includinganyviewsexpressedonthebackpageoftheresearchreport,accuratelyreflecttheirpersonalview(s)andthatnopartoftheircompensationwas,isorwillbedirectlyorindirectlyrelatedtothespecificrecommendation(s)orviewscontainedinthisresearchreport:DunWang,CoreyChanandYiRuImportantdisclosuresEquities:StockratingsandbasisforfinancialanalysisHSBCanditsaffiliates,includingtheissuerofthisreport(“HSBC”)believesaninvestor'sdecisiontobuyorsellastockshoulddependonindividualcircumstancessuchastheinvestor'sexistingholdings,risktoleranceandotherconsiderationsandthatinvestorsutilisevariousdisciplinesandinvestmenthorizonswhenmakinginvestmentdecisions.Ratingsshouldnotbeusedorreliedoninisolationasinvestmentadvice.Differentsecuritiesfirmsuseavarietyofratingstermsaswellasdifferentratingsystemstodescribetheirrecommendationsandthereforeinvestorsshouldcarefullyreadthedefinitionsoftheratingsusedineachresearchreport.Further,investorsshouldcarefullyreadtheentireresearchreportandnotinferitscontentsfromtheratingbecauseresearchreportscontainmorecompleteinformationconcerningtheanalysts'viewsandthebasisfortherating.From23rdMarch2015HSBChasassignedratingsonthefollowingbasis:Thetargetpriceisbasedontheanalyst’sassessmentofthestock’sactualcurrentvalue,althoughweexpectittotakesixto12monthsforthemarketpricetoreflectthis.Whenthetargetpriceismorethan20%abovethecurrentshareprice,thestockwillbeclassifiedasaBuy;whenitisbetween5%and20%abovethecurrentshareprice,thestockmaybeclassifiedasaBuyoraHold;whenitisbetween5%belowand5%abovethecurrentshareprice,thestockwillbeclassifiedasaHold;whenitisbetween5%and20%belowthecurrentshareprice,thestockmaybeclassifiedasaHoldoraReduce;andwhenitismorethan20%belowthecurrentshareprice,thestockwillbeclassifiedasaReduce.Ourratingsarere-calibratedagainstthesebandsatthetimeofany'materialchange'(initiationorresumptionofcoverage,changeintargetpriceorestimates).Upside/Downsideisthepercentagedifferencebetweenthetargetpriceandtheshareprice.Priortothisdate,HSBC’sratingstructurewasappliedonthefollowingbasis:Foreachstockwesetarequiredrateofreturncalculatedfromthecostofequityforthatstock’sdomesticor,asappropriate,regionalmarketestablishedbyourstrategyteam.Thetargetpriceforastockrepresentedthevaluetheanalystexpectedthestocktoreachoverourperformancehorizon.Theperformancehorizonwas12months.ForastocktobeclassifiedasOverweight,thepotentialreturn,whichequalsthepercentagedifferencebetweenthecurrentsharepriceandthetargetprice,includingtheforecastdividendyieldwhenindicated,hadtoexceedtherequiredreturnbyatleast5percentagepointsoverthesucceeding12months(or10percentagepointsforastockclassifiedasVolatile).ForastocktobeclassifiedasUnderweight,thestockwasexpectedtounderperformitsrequiredreturnbyatleast5percentagepointsoverthesucceeding12months(or10percentagepointsforastockclassifiedasVolatile).StocksbetweenthesebandswereclassifiedasNeutral.Astockwasclassifiedasvolatileifitshistoricalvolatilityhadexceeded40%,ifthestockhadbeenlistedforlessthan12months(unlessitwasinanindustryorsectorwherevolatilityislow)oriftheanalystexpectedsignificantvolatility.However,stockswhichwedidnotconsidervolatilemayinfactalsohavebehavedinsuchaway.Historicalvolatilitywasdefinedasthepastmonth'saverageofthedaily365-daymovingaveragevolatilities.Inordertoavoidmisleadinglyfrequentchangesinrating,however,volatilityhadtomove2.5percentagepointspastthe40%benchmarkineitherdirectionforastock'sstatustochange.49EnergyTransition●EquitiesMarch2022Ratingdistributionforlong-terminvestmentopportunitiesAsof31December2021,thedistributionofallindependentratingspublishedbyHSBCisasfollows:Forthepurposesofthedistributionabovethefollowingmappingstructureisusedduringthetransitionfromtheprevioustocurrentratingmodels:underourpreviousmodel,Overweight=Buy,Neutral=HoldandUnderweight=Sell;underourcurrentmodelBuy=Buy,Hold=HoldandReduce=Sell.Forratingdefinitionsunderbothmodels,pleasesee“Stockratingsandbasisforfinancialanalysis”above.Forthedistributionofnon-independentratingspublishedbyHSBC,pleaseseethedisclosurepageavailableathttp://www.hsbcnet.com/gbm/financial-regulation/investment-recommendations-disclosures.Sharepriceandratingchangesforlong-terminvestmentopportunitiesChinaNationalChemical(601117.SS)sharepriceperformanceCNYVsHSBCratinghistoryRating&targetpricehistoryFromToDateAnalystBuyHold13Jun2019ThomasC.HilboldtHoldBuy11Oct2019ThomasC.HilboldtBuyHold08May2020ThomasC.HilboldtHoldN/A14May2020N/ABuy21Aug2020BonanLiTargetpriceValueDateAnalystPrice17.0013Jun2019ThomasC.HilboldtPrice27.1011Oct2019ThomasC.HilboldtPrice37.8015Oct2019ThomasC.HilboldtPrice45.9008May2020ThomasC.HilboldtPrice5N/A14May2020Price67.8021Aug2020BonanLiPrice715.2007Sep2021AmyHuSource:HSBCSource:HSBCLongiGreen(601012.SS)sharepriceperformanceCNYVsHSBCratinghistoryRating&targetpricehistoryFromToDateAnalystN/ABuy20Jun2019CoreyChanBuyHold22Sep2020CoreyChanTargetpriceValueDateAnalystPrice125.8620Jun2019CoreyChanPrice229.4303Sep2019CoreyChanPrice322.2919Nov2019CoreyChanPrice428.5719Feb2020CoreyChanPrice530.9324Mar2020CoreyChanPrice630.7111May2020CoreyChanPrice752.5722Sep2020CoreyChanPrice872.6424Jan2021CoreyChanPrice971.2106May2021CoreyChanPrice1080.6023Sep2021CoreyChanPrice1172.6008Mar2022CoreyChanSource:HSBCSource:HSBC579111315Mar-17Mar-18Mar-19Mar-20Mar-21Mar-224142434445464748494Mar-17Mar-18Mar-19Mar-20Mar-21Mar-22Buy61%(15%oftheseprovidedwithInvestmentBankingServicesinthepast12months)Hold33%(14%oftheseprovidedwithInvestmentBankingServicesinthepast12months)Sell6%(15%oftheseprovidedwithInvestmentBankingServicesinthepast12months)EnergyTransition●EquitiesMarch202250MCCA(601618.SS)sharepriceperformanceCNYVsHSBCratinghistoryRating&targetpricehistoryFromToDateAnalystN/ABuy09Nov2018CoreyChanTargetpriceValueDateAnalystPrice14.1003Apr2019CoreyChanPrice23.6026May2020CoreyChanPrice36.1009Aug2021CoreyChanPrice47.2011Feb2022CoreyChanSource:HSBCSource:HSBCSinopecOilEquipment(000852.SZ)sharepriceperformanceCNYVsHSBCratinghistoryRating&targetpricehistoryFromToDateAnalystN/ABuy08Nov2019BonanLiBuyHold23Nov2021AmyHuTargetpriceValueDateAnalystPrice19.6008Nov2019BonanLiPrice29.6007Feb2020BonanLiPrice37.9021Aug2020BonanLiPrice45.6023Nov2021AmyHuSource:HSBCSource:HSBCToviewalistofalltheindependentfundamentalratingsdisseminatedbyHSBCduringthepreceding12-monthperiod,pleaseusethefollowinglinkstoaccessthedisclosurepage:ClientsofGlobalResearchandGlobalBankingandMarkets:www.research.hsbc.com/A/DisclosuresClientsofHSBCPrivateBanking:www.research.privatebank.hsbc.com/DisclosuresHSBC&AnalystdisclosuresDisclosurechecklistCompanyTickerRecentpricePricedateDisclosureLONGIGREEN601012.SS80.5023Mar20227Source:HSBC1HSBChasmanagedorco-managedapublicofferingofsecuritiesforthiscompanywithinthepast12months.2HSBCexpectstoreceiveorintendstoseekcompensationforinvestmentbankingservicesfromthiscompanyinthenext3months.3Atthetimeofpublicationofthisreport,HSBCSecurities(USA)Inc.isaMarketMakerinsecuritiesissuedbythiscompany.4Asof28February2022,HSBCbeneficiallyowned1%ormoreofaclassofcommonequitysecuritiesofthiscompany.5Asof31January2022,thiscompanywasaclientofHSBCorhadduringthepreceding12monthperiodbeenaclientofand/orpaidcompensationtoHSBCinrespectofinvestmentbankingservices.2345678Mar-17Mar-18Mar-19Mar-20Mar-21Mar-223579111315Mar-17Mar-18Mar-19Mar-20Mar-21Mar-2251EnergyTransition●EquitiesMarch20226Asof31January2022,thiscompanywasaclientofHSBCorhadduringthepreceding12monthperiodbeenaclientofand/orpaidcompensationtoHSBCinrespectofnon-investmentbankingsecurities-relatedservices.7Asof31January2022,thiscompanywasaclientofHSBCorhadduringthepreceding12monthperiodbeenaclientofand/orpaidcompensationtoHSBCinrespectofnon-securitiesservices.8Acoveringanalyst/shasreceivedcompensationfromthiscompanyinthepast12months.9Acoveringanalyst/soramemberofhis/herhouseholdhasafinancialinterestinthesecuritiesofthiscompany,asdetailedbelow.10Acoveringanalyst/soramemberofhis/herhouseholdisanofficer,directororsupervisoryboardmemberofthiscompany,asdetailedbelow.11Atthetimeofpublicationofthisreport,HSBCisanon-USMarketMakerinsecuritiesissuedbythiscompanyand/orinsecuritiesinrespectofthiscompany12Asof18Mar2022,HSBCbeneficiallyheldanetlongpositionofmorethan0.5%ofthiscompany’stotalissuedsharecapital,calculatedaccordingtotheSSRmethodology.13Asof18Mar2022,HSBCbeneficiallyheldanetshortpositionofmorethan0.5%ofthiscompany’stotalissuedsharecapital,calculatedaccordingtotheSSRmethodology.HSBCanditsaffiliateswillfromtimetotimeselltoandbuyfromcustomersthesecurities/instruments,bothequityanddebt(includingderivatives)ofcompaniescoveredinHSBCResearchonaprincipaloragencybasisoractasamarketmakerorliquidityproviderinthesecurities/instrumentsmentionedinthisreport.Analysts,economists,andstrategistsarepaidinpartbyreferencetotheprofitabilityofHSBCwhichincludesinvestmentbanking,sales&trading,andprincipaltradingrevenues.Whether,orinwhattimeframe,anupdateofthisanalysiswillbepublishedisnotdeterminedinadvance.Non-U.S.analystsmaynotbeassociatedpersonsofHSBCSecurities(USA)Inc,andthereforemaynotbesubjecttoFINRARule2241orFINRARule2242restrictionsoncommunicationswiththesubjectcompany,publicappearancesandtradingsecuritiesheldbytheanalysts.EconomicsanctionsimposedbytheEU,theUK,theUSAandcertainotherjurisdictionsgenerallyprohibittransactingordealinginanydebtorequityissuedbyRussianSSIentitiesonorafter16July2014(RestrictedSSISecurities).EconomicsanctionsimposedbytheUSAalsogenerallyprohibitUSpersonsfrompurchasingorsellingpubliclytradedsecuritiesissuedbycompaniesdesignatedbytheUSGovernmentas“ChineseMilitary-IndustrialComplexCompanies”(CMICs)oranypubliclytradedsecuritiesthatarederivativeof,ordesignedtoprovideinvestmentexposureto,thetargetedCMICsecurities(collectively,RestrictedCMICSecurities).ThisreportdoesnotconstituteadviceinrelationtoanyRestrictedSSISecuritiesorRestrictedCMICSecurities,andassuch,thisreportshouldnotbeconstruedasaninducementtotransactinanyRestrictedSSISecuritiesorRestrictedCMICSecurities.Fordisclosuresinrespectofanycompanymentionedinthisreport,pleaseseethemostrecentlypublishedreportonthatcompanyavailableatwww.hsbcnet.com/research.HSBCPrivateBankingclientsshouldcontacttheirRelationshipManagerforqueriesregardingotherresearchreports.Inordertofindoutmoreabouttheproprietarymodelsusedtoproducethisreport,pleasecontacttheauthoringanalyst.EnergyTransition●EquitiesMarch202252Additionaldisclosures1Thisreportisdatedasat24March2022.2Allmarketdataincludedinthisreportaredatedasatclose22March2022,unlessadifferentdateand/oraspecifictimeofdayisindicatedinthereport.3HSBChasproceduresinplacetoidentifyandmanageanypotentialconflictsofinterestthatariseinconnectionwithitsResearchbusiness.HSBC'sanalystsanditsotherstaffwhoareinvolvedinthepreparationanddisseminationofResearchoperateandhaveamanagementreportinglineindependentofHSBC'sInvestmentBankingbusiness.InformationBarrierproceduresareinplacebetweentheInvestmentBanking,PrincipalTrading,andResearchbusinessestoensurethatanyconfidentialand/orpricesensitiveinformationishandledinanappropriatemanner.4Youarenotpermittedtouse,forreference,anydatainthisdocumentforthepurposeof(i)determiningtheinterestpayable,orothersumsdue,underloanagreementsorunderotherfinancialcontractsorinstruments,(ii)determiningthepriceatwhichafinancialinstrumentmaybeboughtorsoldortradedorredeemed,orthevalueofafinancialinstrument,and/or(iii)measuringtheperformanceofafinancialinstrumentorofaninvestmentfund.5Thisreportmaybeatranslationofareportauthoredinanotherlanguage.Ifso,andifthereisanydiscrepancybetweenversions,theoriginal-languageversionshallprevail.6Atthetimeofpublicationofthisreport,HSBCQianhaiSecuritiesLimiteddoesnothold1%ormoreofaclassofcommonequitysecuritiesofthiscompany.7Asof21Mar2022HSBCownedasignificantinterestinthedebtsecuritiesofthefollowingcompany(ies):CHINANATIONALCHEMICALENGINEProduction&distributiondisclosures1.Thisreportwasproducedandsignedoffbytheauthoron24Mar202208:38GMT.2.Inordertoseewhenthisreportwasfirstdisseminatedpleaseseethedisclosurepageavailableathttps://research.hsbcqh.com.cn/R/34/RVKbZXj53EnergyTransition●EquitiesMarch2022DisclaimerLegalentitiesasat1December2020‘UAE’HSBCBankMiddleEastLimited,DIFC;HSBCBankMiddleEastLimited,Dubai;‘HK’TheHongkongandShanghaiBankingCorporationLimited,HongKong;‘TW’HSBCSecurities(Taiwan)CorporationLimited;‘CA’HSBCSecurities(Canada)Inc.;‘France’HSBCContinentalEurope;‘Spain’HSBCContinentalEurope,SucursalenEspaña;‘Italy’HSBCContinentalEurope,Italy;‘Sweden’HSBCContinentalEuropeBank,SwedenFilial;‘DE’HSBCTrinkaus&BurkhardtAG,Düsseldorf;000HSBCBank(RR),Moscow;‘IN’HSBCSecuritiesandCapitalMarkets(India)PrivateLimited,Mumbai;‘JP’HSBCSecurities(Japan)Limited,Tokyo;‘EG’HSBCSecuritiesEgyptSAE,Cairo;‘CN’HSBCInvestmentBankAsiaLimited,BeijingRepresentativeOffice;TheHongkongandShanghaiBankingCorporationLimited,SingaporeBranch;TheHongkongandShanghaiBankingCorporationLimited,SeoulSecuritiesBranch;TheHongkongandShanghaiBankingCorporationLimited,SeoulBranch;HSBCSecurities(SouthAfrica)(Pty)Ltd,Johannesburg;HSBCBankplc,London,TelAviv;‘US’HSBCSecurities(USA)Inc,NewYork;HSBCYatirimMenkulDegerlerAS,Istanbul;HSBCMéxico,SA,InstitucióndeBancaMúltiple,GrupoFinancieroHSBC;HSBCBankAustraliaLimited;HSBCBankArgentinaSA;HSBCSaudiArabiaLimited;TheHongkongandShanghaiBankingCorporationLimited,NewZealandBranchincorporatedinHongKongSAR;TheHongkongandShanghaiBankingCorporationLimited,BangkokBranch;PTBankHSBCIndonesia;HSBCQianhaiSecuritiesLimited;BancoHSBCS.A.IssuerofreportHSBCQianhaiSecuritiesLimitedBlock27A&B,QianhaiEnterpriseDreamPark,63QianwanYiRoad,Shenzhen-HongKongCooperationZone,Shenzhen,ChinaPhonenumber:+8675588983288Website:www.hsbcqh.com.cnInthePeople’sRepublicofChina(“PRC”)(ExcludingspecialadministrativeregionsofHongKongandMacao),thisdocumentisissuedandapprovedbyHSBCQianhaiSecuritiesLimitedfortheinformationofitsclientsonly;itisnotintendedforandshouldnotbedistributedtoretailcustomersinthePRC.HSBCQianhaiSecuritiesLimitedisregulatedbytheChinaSecuritiesRegulatoryCommission(“CSRC”)andisqualifiedtoengageinSecuritiesInvestmentAdvisoryBusinessinthePRC[91440300MA5EPLHG1B].AllinquiriesbyrecipientsmustbedirectedtotheHSBCQianhaiSecuritiesLimitedcontactinthePRC.IfitisreceivedbyacustomerofanaffiliateofHSBCQianhaiSecuritiesLimited,itsprovisiontotherecipientissubjecttothetermsofbusinessinplacebetweentherecipientandsuchaffiliate.Thisdocumentisbeingsuppliedtoyousolelyforyourinformationandmaynotberedistributedorpassedon,directlyorindirectly,toanyotherperson,inwholeorinpart,foranypurpose.Thisdocumentisnotandshouldnotbeconstruedasanoffertosellorsolicitationofanoffertopurchaseorsubscribeforanyinvestment.HSBCQianhaiSecuritiesLimitedhasbasedthisdocumentoninformationobtainedfromsourcesitbelievestobereliablebutwhichithasnotindependentlyverified;HSBCQianhaiSecuritiesLimitedmakesnoguarantee,representationorwarrantyandacceptsnoresponsibilityorliabilityastoitsaccuracyorcompleteness.Thedecisionandresponsibilityonwhetherornottopurchase,subscribeorsell(asapplicable)mustbetakenbytheinvestor.Noconsiderationhasbeengiventotheparticularinvestmentobjectives,financialsituationorparticularneedsofanyrecipient.AnyformofwrittenorverbalcommitmentonthesharingofgainsorlossesfromthesecuritiesinvestmentbetweentheinvestorsandtheHSBCQianhaiSecuritiesLimitedarisingfromtheresearchservicesprovidedarenotpermittedandshallbeinvalid.ExpressionsofopinionarethoseoftheResearchDivisionofHSBCQianhaiSecuritiesLimitedonlyandaresubjecttochangewithoutnotice.Fromtimetotimeresearchanalystsconductsitevisitsofcoveredissuers.HSBCQianhaiSecuritiesLimitedanditsaffiliatesand/ortheirofficers,directorsandemployeesmayhavepositionsinanysecuritiesmentionedinthisdocument(orinanyrelatedinvestment)andmayfromtimetotimeaddtoordisposeofanysuchsecurities(orinvestment)totheextentpermittedbylaw.HSBCQianhaiSecuritiesLimitedanditsaffiliatesmayactasmarketmakerorhaveassumedanunderwritingcommitmentinthesecuritiesofcompaniesdiscussedinthisdocument(orinrelatedinvestments),maysellthemtoorbuythemfromcustomersonaprincipalbasisandmayalsoperformorseektoperforminvestmentbankingorunderwritingservicesfororrelatingtothosecompaniesandmayalsoberepresentedonthesupervisoryboardoranyothercommitteeofthosecompanies.Thisdocumentmaycontainhyperlinkstoexternalwebsitesforconvenienceofitsrecipients.HSBCQianhaiSecuritiesLimitedarenotresponsibleforanycontenttherein.HSBCpoliciesprohibitresearchanalystsfromacceptingpaymentorreimbursementfortravelexpensesfromtheissuerforsuchvisits.TheHongkongandShanghaiBankingCorporationLimitedowns51%andQianhaiFinancialHoldingsCo.,Ltd.(“QFH”)owns49%ofsharesinHSBCQianhaiSecuritiesLimited,whichpreparedand/orcontributedtothisresearchreport.HSBCQianhaiSecuritiesLimitedhasestablishedpoliciesandproceduresreasonablydesignedtopreventQFHfromexercisingdirectorindirectinfluenceoverthecontentofHSBCQianhaiSecuritiesLimitedresearchreportsandthechoiceofcompaniesthatwillbethesubjectofresearchreports.Furthermore,HSBCQianhaiSecuritiesLimitedhasestablishedadditionalpoliciesandproceduresreasonablydesignedtopreventanypersonorentity,whetherfromwithinHSBCQianhaiSecuritiesLimited,QFHorotherwise,frominfluencingtheactivitiesoftheHSBCQianhaiSecuritiesLimited’sresearchanalystsorthecontentofresearchreports.TheinformationandopinionsinthisresearchreportweredistributedbyTheHongkongandShanghaiBankingCorporationLimitedinHongKong,whichacceptslegalresponsibilityforitscontents.ThisresearchreportisintendedtoprovideinformationtoTheHongkongandShanghaiBankingCorporationLimited’sinstitutionalandprofessionalinvestor(asdefinedinSchedule1totheSecuritiesandFutureOrdinance(Cap.571))("SFO")customersonly;itisnotintendedforandshouldnotbedistributedtocustomersinHongKongwhoarenot"professionalinvestors".TheHongkongandShanghaiBankingCorporationLimitedisregulatedbytheHongKongMonetaryAuthority.TheHongkongandShanghaiBankingCorporationLimitedmakesnorepresentationsthattheproductsorservicesmentionedinthisdocumentareavailabletopersonsinHongKong.Anyenquirieswithrespecttoanymattersarisingfrom,orinconnectionwith,thisresearchreportshouldbedirectedtotherecipient’scontactpersonatTheHongkongandShanghaiBankingCorporationLimited.Theanalyst(s)namedinthisresearchreportwhois(are)notemployedbyand/oraccreditedtoTheHongkongandShanghaiBankingCorporationLimitedis(are)notlicensedtocarryonanyregulatedactivitiesinHongKongundertheSFO.Theanalyst(s)is(are)onlynamedinthisresearchreportasbeingasourceoftheinformationcontainedhereinanddoes(do)notpurporttocarryonanyregulatedactivitiesinHongKongundertheSFOorholdhimself/herself(themselves)outasbeingabletodoso.HSBCSecurities(USA)Inc.,aUS-registeredbroker-dealerandmemberofFINRA,acceptsresponsibilityforthecontentofthisresearchreportpreparedbyitsnon-USforeignaffiliate.Theinformationcontainedhereinisundernocircumstancestobeconstruedasinvestmentadviceandisnottailoredtotheneedsoftherecipient.AllU.S.personsreceivingand/oraccessingthisreportandwishingtoeffecttransactionsinanysecuritydiscussedhereinshoulddosowithHSBCSecurities(USA)Inc.intheUnitedStatesandnotwithitsnon-USforeignaffiliate,theissuerofthisreport.IntheUK,thispublicationisdistributedbyHSBCBankplcfortheinformationofitsClients(asdefinedintheRulesofFCA)andthoseofitsaffiliatesonly.NothinghereinexcludesorrestrictsanydutyorliabilitytoacustomerwhichHSBCBankplchasundertheFinancialServicesandMarketsAct2000orundertheRulesofFCAandPRA.ArecipientwhochoosestodealwithanypersonwhoisnotarepresentativeofHSBCBankplcintheUKwillnotenjoytheprotectionsaffordedbytheUKregulatoryregime.HSBCBankplcisregulatedbytheFinancialConductAuthorityandthePrudentialRegulationAuthority.InSingapore,thispublicationisdistributedbyTheHongkongandShanghaiBankingCorporationLimited,SingaporeBranchforthegeneralinformationofinstitutionalinvestorsorotherpersonsspecifiedinSections274and304oftheSecuritiesandFuturesAct(Chapter289)(“SFA”)andaccreditedinvestorsandotherpersonsinaccordancewiththeconditionsspecifiedinSections275and305oftheSFA.OnlyEconomicsorCurrenciesreportsareintendedfordistributiontoapersonwhoisnotanAccreditedInvestor,ExpertInvestororInstitutionalInvestorasdefinedinSFA.TheHongkongandShanghaiBankingCorporationLimited,SingaporeBranchacceptslegalresponsibilityforthecontentsofreportspursuanttoRegulation32C(1)(d)oftheFinancialAdvisersRegulations.ThispublicationisnotaprospectusasdefinedintheSFA.ThispublicationisnotaprospectusasdefinedintheSFA.Itmaynotbefurtherdistributedinwholeorinpartforanypurpose.TheHongkongandShanghaiBankingCorporationLimitedSingaporeBranchisregulatedbytheMonetaryAuthorityofSingapore.RecipientsinSingaporeshouldcontacta"HongkongandShanghaiBankingCorporationLimited,SingaporeBranch"representativeinrespectofanymattersarisingfrom,orinconnectionwiththisreport.PleaserefertoTheHongkongandShanghaiBankingCorporationLimitedSingaporeBranch’swebsiteatwww.business.hsbc.com.sgforcontactdetails.InAustralia,thispublicationhasbeendistributedbyTheHongkongandShanghaiBankingCorporationLimited(ABN65117925970,AFSL301737)forthegeneralinformationofits“wholesale”customers(asdefinedintheCorporationsAct2001).Wheredistributedtoretailcustomers,thisresearchisdistributedbyHSBCBankAustraliaLimited(ABN48006434162,AFSLNo.232595).TheserespectiveentitiesmakenorepresentationsthattheproductsorservicesmentionedinthisdocumentareavailabletopersonsinAustraliaorarenecessarilysuitableforanyparticularpersonorappropriateinaccordancewithlocallaw.Noconsiderationhasbeengiventotheparticularinvestmentobjectives,financialsituationorparticularneedsofanyrecipient.ThispublicationisdistributedinNewZealandbyTheHongkongandShanghaiBankingCorporationLimited,NewZealandBranchincorporatedinHongKongSAR.IntheEuropeanEconomicArea,thispublicationhasbeendistributedbyHSBCContinentalEuropeorbysuchotherHSBCaffiliatefromwhichtherecipientreceivesrelevantservices.InJapan,thispublicationhasbeendistributedbyHSBCSecurities(Japan)Limited.Itmaynotbefurtherdistributedinwholeorinpartforanypurpose.InKorea,thispublicationisdistributedbyTheHongkongandShanghaiBankingCorporationLimited,SeoulSecuritiesBranch("HBAPSLS")forthegeneralinformationofprofessionalinvestorsspecifiedinArticle9oftheFinancialInvestmentServicesandCapitalMarketsAct(“FSCMA”).ThispublicationisnotaprospectusasdefinedintheFSCMA.Itmaynotbefurtherdistributedinwholeorinpartforanypurpose.HBAPSLSisregulatedbytheFinancialServicesCommissionandtheFinancialSupervisoryServiceofKorea.InCanada,thisdocumenthasbeendistributedbyHSBCSecurities(Canada)Inc.(memberIIROC),and/oritsaffiliates.TheinformationcontainedhereinisundernocircumstancestobeconstruedasinvestmentadviceinanyprovinceorterritoryofCanadaandisnottailoredtotheneedsoftherecipient.NosecuritiescommissionorsimilarregulatoryauthorityinCanadahasreviewedorinanywaypassedjudgmentuponthesematerials,theinformationcontainedhereinorthemeritsofthesecuritiesdescribedherein,andanyrepresentationtothecontraryisanoffense.InBrazil,thisdocumenthasbeendistributedbyBancoHSBCS.A.("HSBCBrazil"),and/oritsaffiliates.AsrequiredbyInstructionNo.598/18oftheSecuritiesandExchangeCommissionofBrazil(ComissãodeValoresMobiliários),potentialconflictsofinterestconcerning(i)HSBCBraziland/oritsaffiliates;and(ii)theanalyst(s)responsibleforauthoringthisreportarestatedonthechartabovelabelled"HSBC&AnalystDisclosures".IfyouareanHSBCPrivateBanking(“PB”)customerwithapprovalforreceiptofrelevantresearchpublicationsbyanapplicableHSBClegalentity,youareeligibletoreceivethispublication.Tobeeligibletoreceivesuchpublications,youmusthaveagreedtotheapplicableHSBCentity’stermsandconditionsforaccessingresearchandthetermsandconditionsofanyotherinternetbankingserviceofferedbythatHSBCentitythroughwhichyouwillaccessresearchpublications(“theTerms”).DistributionofthispublicationisthesoleresponsibilityoftheHSBCentitywithwhomyouhaveagreedtheTerms.Ifyoudonotmeettheaforementionedeligibilityrequirementspleasedisregardthispublicationand,ifyouareacustomerofPB,pleasenotifyyourRelationshipManager.ReceiptofresearchpublicationsisstrictlysubjecttotheTermsandanyotherconditionsordisclaimersapplicabletotheprovisionofthepublicationsthatmaybeadvisedbyPB.©Copyright2022,HSBCQianhaiSecuritiesLimited,ALLRIGHTSRESERVED.Nopartofthispublicationmaybereproduced,storedinaretrievalsystem,ortransmitted,inanyformorbyanymeans,electronic,mechanical,photocopying,recording,orotherwise,withoutthepriorwrittenpermissionofHSBCQianhaiSecuritiesLimited.MCI(P)037/01/2022,MCI(P)017/10/2021[1188424]HeadofResearch,HSBCQianhaiSecuritiesStevenSun+8675588983158stevensun@hsbcqh.com.cnDeputyHeadofResearch,HeadofResearchProduct,HSBCQianhaiSecuritiesJohnChungChinaEquityStrategyAnalyst,HeadofChinaEquityStrategyResearchStevenSun+8675588983158stevensun@hsbcqh.com.cnAnalyst,ChinaEquityStrategyResearchAnakinTang+862160813876anakin.tang@hsbcqh.com.cnAssociateJeffreyXieAgriculture&FisheryAnalyst,HeadofA-shareAgricultureResearchAndyLi+862160813812andy.j.li@hsbcqh.com.cnAnalyst,A-shareAgricultureResearchYihuiSha+862160813804yihui.sha@hsbcqh.com.cnAuto&AutoPartsAnalyst,HeadofA-shareAutoResearchYuqianDing+861057952350yuqian.ding@hsbcqh.com.cnAssociateLiYangConsumerAnalyst,HeadofA-shareConsumerResearchKatharineSong+862160813807kathy.l.h.song@hsbcqh.com.cnAnalyst,A-shareFood&BeverageandPulp&PaperResearchDarronXue+8675588983407darron.xue@hsbcqh.com.cnAnalyst,A-shareConsumerJosephZhou+8675588983401joseph.yj.zhou@hsbcqh.com.cnAnalyst,A-ShareConsumerLiQuan+8675588983471li.quan@hsbcqh.com.cnFinancialsAnalyst,HeadofA-shareFinancialsResearchAngelSun+862160813815angel.y.sun@hsbcqh.com.cnIndustrialsandEnvironmentalServicesAnalyst,A-shareIndustrials&EnvironmentalAmyHu+8675588983408ruo.lin.hu@hsbcqh.com.cnInfrastructure&RenewablesAnalyst,HeadofA-shareInfrastructure&RenewablesResearchCoreyChan+862160813801corey.chan@hsbcqh.com.cnAnalyst,A-shareInfrastructure&RenewablesResearchDunWang+862160813802dun.wang@hsbcqh.com.cnAssociateLiamTianHealthcareAnalyst,ChinaHealthcareResearchJunjieHuang+862160813859junjie.huang@hsbcqh.com.cnAssociateEvieLiuAssociateCindyChaiPetrochemical&NewMaterialsAnalyst,HeadofA-sharePetrochemicalandNewMaterialsEricShen+861057952343eric.shen@hsbcqh.com.cnAnalyst,A-sharePetrochemicalandNewMaterialsYiRu+862160813808yi.ru@hsbcqh.com.cnTelecoms,Media&TechnologyAnalyst,HeadofA-shareTechnologyHardwareResearchFrankHe+862160813809frank.fang.he@hsbcqh.com.cnAnalyst,A-shareTechnologyHardwareResearchChaseDing+8675588983409chase.ding@hsbcqh.com.cnAnalyst,A-shareTechnologyHardwareResearchBingyiZheng+862160813828bingyi.zheng@hsbcqh.com.cnAssociateStevenWangAnalyst,HeadofA-shareMedia&InternetResearchJingHan+861057952344jing01.han@hsbcqh.com.cnAssociateBruceSunAnalyst,A-shareITSoftwareResearchYiranLiu+861057952349yiran1.liu@hsbcqh.com.cnTransportationandLogisticsAnalyst,HeadofA-shareTransportation&LogisticsResearchDavidWu+862160813802david.wu@hsbcqh.com.cnAssociateWilliamSunHSBCQianhaiResearchTeamIssuerofreport:HSBCQianhaiSecuritiesLimitedBlock27A&B,QianhaiEnterpriseDreamPark63QianwanYiRoad,Shenzhen-HongKongCooperationZone,Shenzhen,ChinaTelephone:+8675588983288Website:https://research.hsbcqh.com.cnEmployedbyanon-USaffiliateofHSBCSecurities(USA)Inc,andisnotregistered/qualifiedpursuanttoFINRAregulationsHowtoaccessourresearchLogontothewebsiteresearch.hsbc.comAddHSBCResearchappbyaccessingthesymphonymarketandusethesmartsearchfunctionsSubscribetoourPodcastsbyloggingontotheresearchwebsiteandselectingthepodcasticonDownloadtheHSBCGlobalResearchappAskourteamyourresearchrelatedquestionsataskresearch@hsbc.comAccessResearchviaourthird-parties:®AlphaSense®Bloomberg®Bluematrix®Factset®RedDeer®Refinitiv®ResearchExchange®ResearchPool®Sentieo®S&PGlobalMarketIntelligence®VisibleAlpha/ONEaccessMaincontributorsCoreyChanjoinedHSBCQianhaiSecuritiesLimitedin2018asHeadofA-shareInfrastructureResearch.Previously,CoreyworkedasanequityanalystforaUSinvestmentbankinHongKong,wherehefocusedontheChinacapitalgoodssector.HeholdsabacheloroffinancedegreefromtheUniversityofHongKong.YiRujoinedHSBCQianhaiSecuritiesLimitedin2018andisananalystcoveringtheA-sharepetrochemicalsandnewmaterialssector.PriortojoiningHSBC,sheworkedforaleadingglobalresearchandratingcompanyasaresearchassociate,focusingontheChinaoilandgassector.YiholdsaBScinmaterialscienceandengineeringfromtheBeijingUniversityofChemicalTechnologyandanMScinfinancefromDePaulUniversityinChicago.CoreyChan(S1700518100001)Head,A-shareInfrastructure&RenewablesResearchHSBCQianhaiSecuritiesLimitedcorey.chan@hsbcqh.com.cn+862160813801YiRu(S1700520120001)Analyst,A-sharePetrochemicals&NewMaterialsHSBCQianhaiSecuritiesLimitedyi.ru@hsbcqh.com.cn+862160813808DunWangjoinedHSBCQianhaiSecuritiesLimitedin2018asanequityresearchanalyst,coveringA-shareinfrastructure,electricalequipmentandrenewableenergysectors.Previously,DunworkedasanoffshoreresearchassistantforaUSinvestmentbankandananalystforaprivateequityfirm.Heholdsamaster’sdegreeinaccountingfromtheFosterSchoolofBusinessattheUniversityofWashingtonandabachelor’sdegreeincommerce(honours)fromtheUniversityofBritishColumbia.DunWang(S1700519060002)Analyst,A-shareInfrastructure&RenewablesHSBCQianhaiSecuritiesLimiteddun.wang@hsbcqh.com.cn+862160813827
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