The current situation of the company
On June 30, we attended the 2020 electric fracturing expert meeting held by Honghua Group, at which the company's management and industry experts gave a detailed introduction to China's shale gas industry and the company's fracturing business, and communicated with investors.
Comment
The impact of the epidemic is limited, and the utilization rate of the company's fracturing equipment has been close to saturation since April. The company said that due to the dual impact of the epidemic and the Spring Festival holiday in 1Q20 this year, the utilization rate of fracturing equipment may only reach about 60 per cent of the low range of 60-70 per cent at the end of last year. However, after entering April, the company's volume of work began to reach saturation, the utilization rate increased significantly, and the company expects the saturation to last until next year. The company pumped 2934 segments in 2019, and it is expected to have pumped 1900 segments in the first half of the year, reaching about 65% of the total number of pumping sections in the whole of last year.
Unconventional oil and gas development equipment is gradually taking shape, and the company plans to vigorously promote the large-scale operation of the all-electric fracturing system in the next step. The market share of the company's electric fracturing pump has reached the first place. By 2019, the company has sold a total of 16 sets of fracturing pumps in China. We expect the production capacity to reach about 800,000 hydraulic horsepower, and the electric fracturing market share accounts for more than 80%. It accounts for about 25% of China's entire fracturing market. In the next step, the company plans to focus on the electric fracturing pump equipment and take the lead in launching complete sets of unconventional oil and gas development equipment, including electric sand mixing pry, liquid supply pry, mixed pry and so on. We believe that the company is expected to further expand its business scale and service types in the shale gas market with more complete equipment and increasingly mature power grid systems in the market.
The growth rate of fracturing pump sales may depend in part on power grid construction, and investors are advised to focus on the oil service sector this year. According to the company, at present, new shale gas producing areas in China, such as East China, have implemented the policy of "power grid first", but in some old areas, such as Fuling, traditional fracturing is still dominant, and the ratio with electric drive fracturing may be 7:3. We believe that the advancing speed of electric drive fracturing pumps in the future may partly depend on the speed of power grid construction. Therefore, we expect that the sales of the company's electric fracturing pumps may decline in 2020 compared with the same period last year, but investors are advised to pay attention to the rising space of the company's oil service sector. the main considerations are: 1) the company has increased from 12 pumps last year to 16 fracturing service teams; 2) under the "rent instead of sale" mode, the influence of the return time of oil service profits 3) more perfect complete sets of electric drive equipment to provide more services.
Valuation proposal
Maintain earnings forecast and target price of HK $0.90, corresponding to 35 times 2020 price-to-earnings ratio. Maintain an industry rating that outperforms. The current share price trades at 9.7 times 2020 p / e.
Risk.
Policy risk, oil service orders are lower than expected.