Items:

On July 23, Renzhi Oil Service released its semi-annual report, with operating income of 241.9075 million yuan in the first half of the year, up 6.13% from the same period last year; operating profit of 20.7129 million yuan, down 2.30% from the same period last year; and net profit belonging to the owner of the parent company was 17.0813 million yuan, up 2.49% from the same period last year.

Main points:

Drilling fluid market: relatively small volume and rapid growth. In the oil suit, the drilling fluid market is relatively small, about 3%, but the growth rate is faster. Considering that although the proportion of drilling fluid market is relatively small, the absolute value of the market is relatively objective, so since listing, the company has always carried out business around drilling fluid, oil field environmental protection and other main industries.

At present, the company has a large share of drilling fluid market in southwest China. However, in the domestic market, the drilling companies under the three major oil companies have the dual advantages of platform and technology, while the foreign market is controlled by giants such as Schlumberger and Baker Hughes, resulting in some resistance to business expansion.

The sharp increase in non-operating income helped the net profit reach the forecast value. During the reporting period, the company's operating profit decreased by 488600, but non-operating income in the first half of the year increased by 535200, or 547.94%. In the end, the net profit attributed to the parent company reached the forecast range of 0,10% in the first quarterly report.

The sharp increase in non-operating income is mainly due to large government subsidies, but the company currently does not include deferred income and government subsidies recognized in future installments, indicating that this source of income is not sustainable.

The market development outside the southwest has achieved initial results, but it is still inferior to the decline of the southwest market. In the first half of 2013, the operating revenue of the markets outside the southwest reached 55.8022 million, an increase of 65.38% over the same period last year, accounting for 23.07% of the total revenue.

As far as we know, the company has made some breakthroughs in the northwest, North China and the Middle East overseas. However, in view of the volatile political situation in the Middle East, the company's strategy for the market is based on steady progress. The major contributors to the semi-annual report are the northwest and North China markets.

Risk hints: continuous rainstorms and floods in Sichuan have delayed the company's pre-drilling construction, affecting the company's performance in the second half of the year; the reduction of the investment scale of the company's main customers China Petroleum & Chemical Corp and Petrochina Company Limited will have a direct impact on the company's business; and there is still uncertainty in market development outside the southwest.

Earnings forecast: we believe that the company faces more resistance to growth in 2013, and there may be anti-elastic growth in 2013. Earnings per share from 2013 to 2015 are 0.41 yuan, 0.54 yuan and 0.56 yuan, respectively.