Event

According to the 2019 semi-annual report, the company achieved a net profit of 34.7251 million yuan belonging to the shareholders of the parent company, an increase of 70.93% over the same period last year, and operating income of 683 million yuan, an increase of 182.13% over the same period last year.

Comment

The significant increase in drilling workload has contributed to a substantial increase in the company's operating income. Benefiting from the increase in investment brought about by domestic energy security and the development of the Ukrainian natural gas market, the company completed drilling footage of 236000 meters in the first half of the year, an increase of 113.38% over the same period last year, driving the company's operating revenue to increase by 182.13%.

Southwest shale gas and Ukrainian drilling bag business from scratch, only one year to exceed the traditional service area of northern Xinjiang business income, the future shale gas service scale still has room for substantial growth. Thanks to the market expansion in the past two years, 490 drilling, cementing and directional wells in southwest China and Ukraine were completed in the first half of this year, with a total operating income of 370 million yuan, exceeding that of the traditional service area of northern Xinjiang by 368 million yuan in just one year. In the first half of this year, the company invested more than 200 million yuan to purchase a shale gas rig set to serve the southwest shale gas project, and is expected to officially start construction in the second half of this year, which will help the company to ensure the construction progress and obtain more drilling packages. And increase the gross profit margin of the company's shale gas project.

The business in northern Xinjiang, the traditional service area, still achieved 49% revenue growth and ensured the company's profit growth. Xinjiang is one of the most important areas to ensure the safety of crude oil supply in China. Thanks to the large-scale development of Xinjiang Mahu conglomerate oil field and Jimusar shale oil in the past two years, the company's cost advantages in traditional service areas have been further demonstrated, ensuring the company's profit growth.

Profit forecast

Thanks to the growth of shale gas in Sichuan and Ukraine from scratch, as well as the service advantages of the traditional northern Xinjiang, the company has made an endogenous breakthrough in its business scale, and the gross profit margin will recover as the investment gradually ends. From 2019 to 2021, the company is expected to achieve a net profit of 0.91,1.29 and 178 million yuan respectively belonging to the shareholders of the parent company, equivalent to 0.44,0.63,0.87 yuan per share of EPS, corresponding to 27,19,14 times of PE respectively, and will continue to be rated as "overweight".

Risk hint: the implementation rate of OPEC production limit agreement is too low, the situation in Ukraine has changed significantly, and the production of shale oil and gas in the United States is much higher than expected.