Event: the company released a semi-annual report, achieving operating income of 561 million yuan, an increase of 50.0% over the same period last year, and a net profit of 14.08 million yuan, down 72.8% from the same period last year. Basic earnings per share were 0.02 yuan, down 77.8% from the same period last year.
Main points of investment:
Affected by the industry environment and balance sheet, the gross profit situation deteriorated slightly. The gross profit margin for the reporting period was 34%; it worsened compared with 46% in the same period last year. From the perspective of the company's various business sectors, the revenue of the engineering and machinery manufacturing sectors has increased significantly in this period due to the combination of Korean geothermal drilling services and the designs of Xinjin Hua and Sichuan Oil. The decline in gross profit margin is due to the increase in operating costs faster than the increase in operating income after the newly merged companies such as Sichuan Oil Design and New Jinhua. At the same time, in the case of low oil prices, three barrels of oil reduced prices such as orders and pushed down the company's gross profit margin from the side. Due to the increase in interest expenses on bank loans and the accrued interest on bonds issued by companies, financial expenses increased by 129.15% compared with the same period last year. Sales expenses and administrative expenses have increased significantly due to the expansion of overseas markets and consolidated statements, respectively. The changes in the scope of the merger in this period and the increased payment of expenses have led to the deterioration of the cash flow of operating activities; as the oil service enterprises have strong seasonal characteristics, we believe that this situation will gradually improve.
The price of oil is more flexible when it warms up. As the company's main business is geophysical and drilling and completion services, the whole is in the front position of the oil and gas industry chain, so the oil price is more affected when the rate of decline is faster. This is also reflected in the decline in the company's results compared with the same period last year. However, we believe that oil prices have rebounded from the low point, and given the withdrawal of high-cost production capacity, we believe that there is a high probability that oil prices will rise again, and the most difficult time for the industry is over.
With the improvement of the fundamentals of the industry, the fundamental situation of the company is also expected to stabilize and pick up.
The extension expands and strengthens the company's industrial chain, while dispersing the risk of performance fluctuating with oil prices. The company has rich experience in asset mergers and acquisitions. After years of hard work, it has formed a relatively perfect industrial chain. At the same time, it has also formed three cornerstone blocks of the oil service industry chain, namely, GambiG business, equipment manufacturing business and engineering technology business. On the other hand, relying on Sichuan Oil Design, Shanda Environment and Hengtai Epp Environmental Protection Engineering Company and other enterprises, the company has developed a green oil service plate.
On the whole, we think that the layout of the company's main business plate is relatively clear, and the related asset acquisitions disperse the risk of performance fluctuations.
Give a "highly recommended" rating. It is estimated that the EPS of the year 16-18 is 0.25, 0.34, 0.37 yuan, respectively, and the corresponding PE is 38.27, 27.81, 25.40 times. Give the company a highly recommended rating of 40 times PE in 2017 corresponding to the target price of 13.60 yuan.
Risk Tip: the risk of further decline in international oil prices the risk of postponement of investment in overseas projects of oil companies, the risk that overseas business expansion of oil field EPC is not as expected, and the risk that EPC orders for natural gas pipeline construction exceed expectations.