Diversified service layout and continued growth in performance

The company is a listed company controlled by CNOOC Group Co., Ltd. The company has diversified service capabilities for the main components of offshore petroleum, focusing on the three core business segments of energy technology services, low-carbon environmental protection and digitalization, and energy logistics services. In recent years, the company's profitability has been less affected by external factors. The cost reduction effect of digital intelligence is impressive, and business performance has continued to rise. Revenue grew rapidly from 33.463 billion yuan in 2019 to 47.784 billion yuan in 2022, an increase of 42.8%. The company has excellent cost control: the sum of the three rates of sales, management, and financial expenses fell from 5.62% in 2019 to 3.85% in 2023Q3.

Offshore oil and gas development has become a global trend. CNOOC oil reserves are rising steadily. As onshore oil and gas production becomes increasingly tight, global deep-water oil and gas resources have become the main force in increasing storage and production, and the recoverable reserves in the deep-water ultra-deep water sector have reached 2,006 billion tons of oil equivalent. The capital expenditure of offshore oil companies in various countries increased rapidly in 2023. The market performance in the first half of the year was good, the investment environment was improving, and positive signs of offshore oil and gas development have gradually appeared. In recent years, CNOOC has continued to strengthen risk exploration, find replacement reserves, and consolidate the reserve base; capital expenditure has increased rapidly. Capital expenditure in the first three quarters of 2023 was about 89.46 billion yuan, and the investment ratio in development was stable.

Focusing on the production side, FPSO leads technological development, and low-carbon environmental protection and digitalization help future development. CNOOC's three professional companies have a clear division of labor. Offshore oil development focuses on the production process. Overall revenue is highly correlated with CNOOC Capex and Opex, and profits can withstand fluctuations in oil prices.

The company's energy technology service sector accounts for 30%-40% of total revenue. Among them, FPSO has outstanding advantages as an integrated comprehensive large-scale offshore oil production base and is one of the most suitable equipment for offshore oil and gas development. As CNOOC increases its deep-water exploration efforts, the FPSO market is developing rapidly and is expected to become the focus of competition. The company has the strongest offshore oil production equipment in China, leading comprehensive performance, and FPSO production volume is second in Asia and fifth in the world. The company is the only marine environmental protection service provider for oil spills in China; at the same time, the company has accelerated the development of digital intelligence, built an intelligent injection product ecosystem integrating “intelligent tool products+field services+digital empowerment”, and launched the “Offshore Oil 123” intelligent design to improve work efficiency and reduce production costs.

Profit forecasting and valuation

We forecast net profit of 27.56/32.15/3.735 billion for 23/24/25, and EPS of 0.27/0.32/0.37 yuan/share, respectively. We selected Offshore Oil Engineering, Diwell, and CNOOC, which are also engaged in offshore oil service business, as comparable companies. We gave the company 15 times PE in 2023, corresponding to the target price of 4.07 yuan for 2023, covering the “buy” rating for the first time.

Risk warning: Risk of upstream oil and gas price fluctuations, increased market competition risk, risk of lower demand for oil and gas by-products than expected, risk of safety incidents and insufficient insurance. The company has recently experienced transaction changes