Events:
The company released three quarterly results: in the first three quarters of 2018, the company achieved operating income of 1.159 billion yuan, an increase of 7.47% over the same period last year, and a net profit of 29.0183 million yuan, down 62.48% from the same period last year. Performance forecast for 2018: the net profit of returning home is expected to be 1778-62.23 million yuan, down 80% from the same period last year.
Main points of investment:
Global oil prices continue to rise, oil companies increase capital expenditure, and the oil service industry begins to recover. Benefiting from the steady economic growth of China, the United States and other countries, global oil demand has continued to increase since 2009, and the overall tight supply of crude oil market since 2018 has strongly promoted the continued rise in international oil prices. Brent crude prices rose from $65 a barrel at the beginning of the year to nearly $80 a barrel, and as of October 24, 2018, Brent futures closed at $76.17 a barrel. As oil prices recover and the scale of capital expenditure of oil companies increases, IHSMarkit predicts that global investment in upstream oil and gas exploration and development will return to US $422 billion in 2018, an increase of 11% over the same period last year. According to the data for the first half of 2018, the capital expenditure of the four major foreign oil companies (ConocoPhillips, Shell, Mobil and BP) is US $28.944 billion, an increase of 11.56% over the same period last year. The capital expenditure of three barrels of domestic oil (Petrochina Company Limited, China Petroleum & Chemical Corp and CNOOC) was 119.305 billion yuan, an increase of 19.72 percent over the same period last year. The global oil field service volume has increased, but due to the lag characteristics of the oil field service industry, the industry as a whole is in the stage of recovery.
Affected by asset disposal and stock earnings, the company's net interest rate has fallen. Affected by the imbalance in the recognition time of engineering revenue, the company's revenue growth rate rose quarter by quarter this year. The operating income in the first, second and third quarters of 2018 was 341 million yuan, 421 million yuan and 398 million yuan respectively, with year-on-year growth rates of-25.78%, 6.69% and 76.69%, respectively. In the first three quarters of 2018, the company's gross profit margin was 23.67%, unchanged from the same period last year; the net profit rate was 2.66%, down 4.72 pct from the same period last year. The main reason for the decline in net profit rate is: (1) the sale of 100% stake in Pan China Energy by wholly owned subsidiary Hong Kong Huihua realized delivery in the third quarter, resulting in a confirmed investment loss of-152 million yuan. (2) the market value of Andong Oilfield Services (3337.HK) shares increased significantly in the third quarter of 2018, which led the company to recognize fair value change income of about 90.3 million yuan in the third quarter.
The overall operating condition is good, and the newly signed orders are growing rapidly. In the first half of 2018, the company signed a new contract of 188 million yuan, with a contract amount of 858 million yuan at the end of the period (excluding oil and gas resources business). In August 2018, the company signed a 1.02 billion yuan general contract with OPIC for the EPCIC project of the surface system in BOC III block of the ORYX oil field in Chad. In September 2018, the company signed a 2.134 billion yuan Ethiopian natural gas gathering and processing EPCC project with Ethiopia Branch of Poly Xiexin Natural Gas Investment Co., Ltd. It is estimated that the company is currently in the order of nearly 4 billion yuan, optimistic about the future performance of rapid volume.
Coverage for the first time, giving a "overweight" rating. The company is full of orders on hand, and its future performance is highly deterministic; it is estimated that the company's net profit from 2018 to 2020 will be 30 million yuan, 205 million yuan and 268 million yuan respectively, and the corresponding PE will be 0.03 yuan per share, 0.19 yuan per share and 0.25 yuan per share respectively. With the implementation of newly signed orders, the company's performance is expected to bottom out and pick up, covering for the first time and giving a "overweight" rating.
Risk tips: oil prices have fallen sharply; the recovery of the oil service industry is not as expected; and the company's order execution progress is not as expected.
