Rapid growth in performance and excellent cash flow
Huayou Energy achieved revenue of 1.95 billion yuan in 2019, an increase of 32.5% over the previous year; Guimu's net profit was 200 million yuan, a sharp increase of 143.2% over the previous year; and earnings of 0.11 yuan per share. Cash flow from operating activities was 300 million yuan, an increase of about 4 times over 2018, the highest in the company's history.
Domestic market revenue has increased significantly, and profitability has increased dramatically
By business sector, drilling service revenue was 790 million, an increase of 46.6% over the previous year, mainly due to increased revenue from markets such as Xinjiang, Sichuan, Turkmenistan and Kazakhstan; revenue from completion services was 490 million, an increase of 58.2% over the previous year, mainly due to the growth of the Tarim Oilfield completion tool business and the growth of fracturing services in the Changning region; and reservoir service revenue of 670 million, an increase of 7.4% over the previous year, mainly due to the increase in maintenance and repair business volume in the Xinjiang market. Benefiting from increased domestic oil and gas upstream exploration and development expenses, the Chinese market achieved revenue of 1.33 billion yuan, an increase of 43.8% over the previous year; the overseas market achieved main business revenue of 620 million yuan, an increase of 13.5% over the previous year. Benefiting from scale effects and price increases for some services, the company's EBITDA rate in 2019 was 24.6%, up 1.3 percentage points from the previous year; the net interest rate was 10.3%, a sharp increase of 5.1 percentage points over the previous year.
Investment in the domestic oil and gas market is resilient, and the company's domestic business is only affected by oil prices
In 2020, in the face of oil price trends and the uncertainty of the epidemic, China's oil service market has more opportunities compared to overseas markets. As oil companies' “seven-year action plan” continues to be implemented, it is expected that the Xinjiang market and the southwest shale gas market will still have many market opportunities. We believe that domestic investment has some resilience in the context of increasing self-sufficiency in oil and gas. The company's domestic revenue accounts for nearly 70%, of which 90% are natural gas projects. Related investments can be maintained, and the company's domestic business is only affected by oil prices.
Maintain a “buy” rating
Although we think that as the epidemic is gradually brought under control in the future, oil and gas demand recovers, production reduction alliances are expected to be re-established, and long-term oil prices will recover; however, oil prices are running at a low level at this stage, which may affect the recent prosperity of the industry. We lowered the company's profit forecast. Cautiously expected the 20-21 EPS to be 0.08/0.11 yuan respectively (the original forecast was 0.13/0.16 yuan); introducing the 22-year EPS forecast was 0.13 yuan. The company has a sound long-term business strategy, good cash flow, is prepared to fully cope with oil price fluctuations, and has the ability to overcome the oil price cycle; it is still optimistic about the company's development and maintains a “buy” rating.
Risk warning: oil price fluctuation risk, foreign market risk, exchange rate fluctuation risk
