Events:

The company announces its performance forecast for 2018. In 18 years, the company is expected to achieve a net profit of 6.05-641 million yuan belonging to shareholders of listed companies, an increase of 65 percent to 75 percent over the same period last year, and a net profit of 4.61-496 million yuan after deducting non-profit, an increase of 142 percent over the same period last year. Among them, the net profit of the company's main business for the whole year was about 19.67-2.056 billion yuan, an increase of 434 percent over the same period last year.

Comments:

Without considering the impairment of assets, the performance of 18Q4's main business is very bright. From the perspective of homing net profit, the company suffered a slight loss in 18Q4, mainly due to the substantial provision for asset impairment in the fourth quarter. According to the announcement, the company set aside 194 million yuan in asset impairment in the first three quarters and 1.117 billion yuan in the whole year, while 923 million yuan in the fourth quarter. Adding this back, the net profit of 18Q4's main business is expected to be about 900 million yuan.

Our preliminary analysis of the reasons for the outstanding performance has three points: first, the output of the company is relatively fast. The announcement shows that the daily output of oil and gas equivalent in Q3 is 463 thousand barrels per day, which is significantly higher than that of 3.93 thousand barrels per day in Q2 single season. It shows that the company's drilling effect is very good, and it is reasonable to believe that Q4 production in a single season still has some room to increase. Second, the price discount between the regional price of Midland and WTI has dropped from an average of $14.40 per barrel in Q3 to $6.30 per barrel in Q4, directly thickening the company's oil and gas prices. In the future, with the opening of the pipeline bottleneck, the price discount will be further reduced. Third, the company makes rational use of hedging tools. Although the international oil price of 18Q4 has dropped sharply, the company has locked in most of the output during the year. In the process of decline, this part of hedging profit and loss has changed from negative to positive, and the contribution is expected to be considerable.

Full provision for impairment, 19 young players. The risk points that restrict the company's performance this year have been removed one by one:

First, American subsidiaries repay loans ahead of time, resulting in an one-time penalty interest and bond-issuing expenses that affect financial expenses. Judging from the situation in the third quarter, the cost of debt has been routinely capitalized. The second is to implement the impairment of bad debts on the Hami mining right investment and founder trust implemented by the management before. 195 million has been set aside in the first three quarters, and 1.117 billion yuan has been set aside by the company for the whole year, of which 1.067 billion yuan has been set aside for the impairment of the book assets involved in the lawsuit. Even if the above assets cannot be recovered through legal procedures, it will not have a further impact on 19-year performance. It means that the biggest risk point that restricts the release of the company's performance has been removed. At present, the shareholder governance of the company is stable, and the new management is back to focus on the main industry of oil and gas, looking forward to its further action.

Low cost of assets, good effect of increasing production and transparent traceability of output are the core advantages that distinguish trendy energy from other oil and gas enterprises. The company accurately stepped in at the most pessimistic moment of the oil price mood at the end of 2015, acquiring Howard & Borden at a full cost of $24 per barrel at 16-year levels (currently about $32 per barrel at normal financial charges). Up to now, there are still a large number of areas to be developed in the north of the block, with great potential to increase production. According to the company's third quarter data, the number of wells drilled in Q3 is slightly lower than that in Q2. Under the condition that the drilling speed of the existing block has not increased significantly, the production of the block has jumped, indicating that the production of the existing well site is good. We have always stressed that unlike other overseas oil and gas resources operators, the oil and gas industry in Texas, where trendy energy assets are located, has complete chains, a high degree of marketization, transparent and traceable production, and obvious advantages.

Upgrade the investment rating to "highly recommended". Based on the current oil price performance and production in the first three quarters, the oil price assumption was adjusted to 56-55-65 US dollars per barrel in 18-20 years, and the equivalent production remained unchanged at 41000, 48000 and 55,000 barrels per day. It is estimated that in 18-20 years, the net profit of shareholders belonging to listed companies is 6.3 yuan 16.6 / 2.57 billion yuan, and the current price corresponds to 22.1,8.4 and 5.4 times of PE. Upgrade the investment rating to "highly recommended".

Risk tips: a sharp decline in international oil prices; corporate governance risks.