Main points of investment:
In the first half of 19, China Oil Energy recorded revenue of 760 million yuan, an increase of 42% over the same period last year, and its net profit reached 75.16 million yuan, an increase of 282% over the same period last year, in line with expectations. We attribute the robust performance to the booming domestic oil service market and effective cost control. The company has plenty of orders on hand, which is expected to lead to a greater expansion of net profit. We raised our 19-year earnings per share forecast from 0.09 yuan to 0.10 yuan (up 100% year-on-year), 20-year forecast from 0.17 yuan to 0.18 yuan (up 80%), and 21-year forecast from 0.23 yuan to 0.25 yuan (39% year-on-year growth). We raised our target price from HK $1.02 to HK $1.19, corresponding to 10 times 19-year forward earnings. The current price has 60.8% room to rise from the target price, and we maintain our buy rating.
The performance is steady. Benefiting from the increase in domestic exploration and development activities, revenue from the drilling sector increased by 41% over the same period last year, while revenue from the completion sector increased by 115% over the same period last year, driving the total revenue in the first half of 19 years up 42% from the same period last year. In the context of strong service demand, the service price is better. By the end of June, EBITDA profit margin increased by 3 percentage points year-on-year to 26%, of which EBITDA profit margin of drilling sector increased by 2% year-on-year, and EBITDA profit margin of completion plate increased by 10% year-on-year. Effective cost management has controlled raw material costs and salary expenses, and the total rate has dropped from 58% to 53% in the same period, driving the operating profit margin to increase by 1 percentage point compared with the same period last year. The asset-liability ratio remained stable at 47%, while the asset turnover rate further increased from 0.24 to 0.30, driving the return on net assets up 8.4 percentage points from the same period last year.
There are plenty of orders on hand. By the end of July 18, the amount of on-hand orders increased from 1.9 billion yuan to 2.6 billion yuan compared with the same period last year. Structurally, domestic orders in hand rose 57 per cent year-on-year to 1.7 billion yuan, while overseas orders rose 14 per cent year-on-year to 1 billion yuan. Domestic drilling and completion business orders grew the fastest, with on-hand orders up 59.6% and 85.9% respectively compared with the same period last year. In view of the better-than-expected inflow of orders, we raised our 19-year earnings per share forecast from 0.09 yuan to 0.10 yuan (up 100% year-on-year), 20-year forecast from 0.17 yuan to 0.18 yuan (up 80%), and 21-year forecast from 0.23 yuan to 0.25 yuan (39% year-on-year growth).
Technical services. The company announced that it has reached a strategic cooperation with the fourth paradigm of a leading artificial intelligence company to enter the upstream oil field information service market. We are optimistic about this strategic cooperation prospect of the company. On the one hand, the domestic oil field information service is a blue ocean market, and the potential market space is huge; on the other hand, the market boom is little affected by the capital expenditure of upstream oil companies, and long-term value creation is expected.
Keep buying. In view of the fact that sufficient on-hand orders are expected to lead to a greater expansion of net profit, we raised our expected earnings per share for 19 years from 0.09 yuan to 0.10 yuan (up 125% year-on-year), from 0.17 yuan to 0.18 yuan (up 76%) in 20 years, and from 0.23 yuan to 0.25 yuan (up 36% year-on-year) in 21 years. We raised our target price from HK $1.02 to HK $1.19 (10 times 19-year forward P / E). Given the 60.8% upside, we maintain our buy rating.
