Accelerated elimination of self-elevating platforms+high boom in oil service orders for self-elevating platforms: More than 60% of the world's self-elevating platforms have been in use for more than 30 years, and the BP oil spill has pushed classification societies to raise their requirements for drilling platforms. We expect that more than 250 jack-up platforms will need to be upgraded or phased out in the next 3 years. At the same time, the marine oil service industry has entered a boom cycle. Looking at ten years, utilization rates and daily rates are at historically high levels. The accelerated elimination of self-elevating platforms and the boom in oil services have spawned a large demand for new platforms for oil service manufacturers. Orders for 166 jack-up drilling platforms have been ordered in the past 5 years, which is basically equivalent to the sum of the past 25 years.
China's offshore industry is developing rapidly, and its self-elevating share has risen to number one in the world: China's offshore equipment has made great strides in the past few years. Both order amount and market share have increased dramatically. In 2013, it surpassed Singapore to become the country with the highest order amount for self-elevating platforms in the world, with a market share of over 50%, becoming the biggest beneficiary of the self-elevating boom.
As the leading domestic offshore drilling package, TSC will fully benefit from the above trend: TSC Group is one of the five suppliers of offshore drilling packages in the world, is the leader in domestic offshore drilling packages, has a good delivery record, and has provided 8 sets of jack-up platform drilling packages. As orders for self-elevating platforms explode and China's market share increases, TSC, as a supplier of core components, will fully benefit from this trend.
Profit forecasts and investment recommendations
Both value and growth potential have been underestimated, and a return in value is imminent: based on our judgment on the growth room of signed orders, we predict that the company's EPS for 2014-15 will be 0.30 and HK$0.46, respectively. The corresponding PE valuations are 13x14PE and 9x15PE, respectively. We believe this valuation level is far from reflecting the company's 14-15 year growth, and the company's growth value is seriously underestimated.
As the biggest beneficiary of the self-elevating platform boom, we believe that the company's profitability will increase dramatically, its growth value will gradually be recognized by the market, and its valuation will further increase. The company's performance in 2014-15 is highly certain. Considering the current valuation center for growth stocks, given 20 times PE in 2014, the target price is 6.00 Hong Kong dollars, and there is still 50% of the stock price space.
