This report analyzes the global oil and gas exploration capital expenditure cycle and the structural changes of the exploitation area, the capital expenditure shows an upward trend, the performance-to-price ratio of deep-sea oil and gas exploitation is outstanding, and the prosperity is better than that on land, driving the demand for oil service equipment. The competition pattern of the global oil service equipment special parts industry is scattered, the production capacity and personnel of overseas enterprises are difficult to meet the demand brought about by this cycle, and domestic enterprises are expected to achieve replacement. Dewey has been ploughing for many years and is one of the core suppliers of global oil and gas equipment forgings, mastering materials and processes Know-how, increasing the added value of products, and expanding production into the field of high-end valves, which has huge room for growth in the future. Cover for the first time, give "overweight" investment rating.

Oil and gas exploration ushered in a new cycle of capital expenditure expansion. The global oil price continues to rise in 2022, reaching a 10-year high. According to EIA, the supply of the international crude oil market will remain tight in at least the next two years, and the oil price is expected to remain above $70. Under high oil prices, the cash flow of oil companies has improved significantly, and capital expenditure on oil and gas exploration has opened a new expansion cycle. Capital expenditure of the seven major international oil companies increased by 28% in 2022 compared with the same period last year, and is expected to continue to grow by 17% in 2023.

The performance-to-price ratio of deep-sea oil and gas exploitation is becoming increasingly prominent and is expected to become the main field of exploitation. On the one hand, deep-sea oil and gas exploitation is ushering in the Subsea2.0 model with reducing cost and increasing efficiency as the core, with equipment parts modular, miniaturized, unmanned and intelligent, while the overall supply chain delivery efficiency is improved, which has greatly reduced the cost of deep-sea oil and gas production; on the other hand, deep-sea oil and gas reserves are abundant and more evenly distributed, and developing countries have a high willingness to exploit. Therefore, the recovery of the prosperity of deep-sea exploitation is obviously better than that on land. In 2022, global offshore oil and gas investment totaled US $165 billion, an increase of 21% over the same period last year, exceeding the level of 2019. The investment in onshore oil and gas exploration was US $281 billion, an increase of 15% over the same period last year. Still not reaching the pre-epidemic level.

The oil service equipment industry is the direct beneficiary of the upstream capital expenditure expansion of oil and gas. According to RystadEnergy,2022, the annual oil service equipment market has expanded to about US $40 billion, accounting for 9% of the total upstream capital expenditure; the upstream equipment special parts account for about 45% of the equipment value, and the market size is about US $18 billion, of which the onshore wellhead special parts are about US $5 billion and the deep-sea equipment special parts are about US $12.1 billion.

The competition pattern of the special parts industry of oil service equipment is scattered, and the industrial chain is being transferred to China. The special parts of the global deep-sea equipment are mainly provided by the century-old forging shops in Europe, which usually do not have the complete component ability, can only cover a few special parts, and have a low market share. After a long period of downward cycle in the industry, its production capacity and manpower are unable to meet the demand brought about by the increase in capital expenditure. Chinese enterprises create cost advantages through logistics and automated production at the low point of oil prices. after the outbreak of the epidemic in 2020, the gap in the industrial chain between China and Europe further widened, accelerating the transfer of the industrial chain of special equipment parts to China, providing opportunities for Chinese enterprises to replace overseas.

Dewey continues to make high-end efforts, and deep-sea products have entered the harvest period. Dewey has been in the industry for more than 20 years and is one of the core suppliers of oil and gas equipment forgings in the world, and has fully entered the deep-sea equipment and fracturing equipment supply chain of the four leading oil service equipment in the world. The company continues to vertically deepen the degree of integration, mastering materials and processes Know-how, forming a forging-roughing-heat treatment-finishing production capacity, enhance the added value of products; at the same time horizontally expand the product line, start in the land wellhead special parts, gradually high barrier, high gross margin of deep-sea equipment special parts, fracturing and drilling equipment special parts also enter the volume stage. In addition, the company invested in the construction of 350MN multi-directional double-action compound extrusion production line to enter the market of high-end valves and piping parts. The global market space of high-end valves in the field of oil and gas reaches US $18.7 billion, and there is a wide space for import substitution in China. After the production line is put into production, high-end valves are expected to become the company's second growth curve.

Coverage for the first time, giving a "overweight" rating. The company has expanded its production capacity against the trend at the bottom of the cycle, and the 70MN press has been put into production. With excellent product performance and sufficient production capacity, the company is expected to fully benefit from the current round of oil and gas capital expenditure expansion cycle with significant performance flexibility. We forecast that the company's revenue in 23-25 will be 12.8 shock 16.3 / 2.07 billion yuan, an increase of 31% 27% over the same period last year, and the net profit of the parent company will be 1.69 pm 2.3 pm 307 million, an increase of 39% over the same period last year. The corresponding PE is 33Compact 24exp 18x. Coverage for the first time, giving a "overweight" rating.

Risk hints: the risk of a sharp fall in oil prices, the risk of high customer concentration, and the increased risk of market competition.