The epidemic superimposed the environmental impact of low oil prices, resulting in a downward performance in the medium term.
Honghua Group announced its mid-term results in 2020, with operating income of 1.81 billion yuan in the first half of the year, down 11.8% from the same period last year, in line with our expectations. However, affected by the epidemic and fluctuations in oil prices, the cost went up, and the net profit was 31 million yuan, down 48.8% from the same period last year, lower than expected. The gross profit margin was 33.6%, a sharp increase of 6.4 percentage points over the same period last year. The income per share is 0.006 yuan.
Benefiting from the domestic shale oil and gas development, the proportion of domestic business has increased, supporting orders and income under the background of the downturn of the oil and gas industry in 2020, China still puts national energy security in the first place, and the intensity of oil and gas exploration and development remains unabated. The stable capital expenditure of oil companies further consolidated the situation of increasing reserves and production, and domestic oil and gas production increased in the first half of 2020. The company's domestic market revenue also grew, with revenue of 1 billion yuan in the first half, an increase of about 30% over the same period last year, accounting for an all-time high of 55%. Revenue from overseas operations was 810 million yuan, down about 36 per cent from the same period last year. With the further improvement of domestic shale oil and gas development, the company will usher in more opportunities in the domestic market. At present, the international oil price has returned to the middle level, and the company's overseas business will resume somewhat after the overseas epidemic has been brought under control.
Electric drive fracturing service to achieve reverse growth
From the point of view of business, the revenue of the fracturing business plate was 537 million yuan, up 22.3% from the same period last year. The electric sand mixing pry was sold for the first time in equipment, and the electric fracturing equipment continued to win market recognition. In terms of service, more than 2000 sections of electric fracturing pump column service was achieved in China, up 70.4% from the same period last year. The company continues to implement the policy of equipment-driven service, relying on complete sets of equipment with electric fracturing pump as the core to provide fracturing services in Sichuan and Chongqing. The revenue of the drilling rig and related products business segment was 620 million yuan, a relatively obvious decline compared with the same period last year, mainly due to the impact of the overseas epidemic and low oil prices, the overseas orders decreased, while the domestic drilling rig orders increased significantly compared with last year. The revenue of the drilling engineering service sector was 180 million yuan, down 5.2% from the same period last year, achieving a major breakthrough in the directional well service market, and successively won bids for directional well services totaling about 30 million yuan in Sichuan, Qinghai and other places.
Maintain a "buy" rating
We downgrade the company's 20-22 EPS forecast to 0.02 pound 0.03 pound 0.04 yuan to reflect the impact of the increase in expense rate after partial caliber adjustment. The company still has many opportunities in the domestic shale oil and gas market, and the electric fracturing service has broad growth space and maintains a "buy" rating.
Risk hints: domestic policy change risk, overseas geo-situation risk, exchange rate fluctuation risk
