Incidents:

On March 18, 2024, the company released its 2023 annual report. In 2023, the company achieved total revenue of 30.8 billion yuan, +4.7% year on year; realized net profit of 1.6 billion yuan, +11% year over year; realized net profit of 1.2 billion yuan without return to mother, +45% year on year. In a single quarter of 2023Q4, the company achieved total revenue of 9.8 billion yuan, -1.0% year-on-month, +50% month-on-month; realized net profit of 248 million yuan, -60% year-on-year, and -36% month-on-month; realized net profit of 157 million yuan, -33% year-on-year, and -47% month-on-month.

Comment:

The high boom in the oil service industry boosted the company's performance. The dividend ratio increased dramatically in 2023. The average price of Brent crude oil was 82.17 US dollars/barrel, -17% year over year. Overall, it remained at a medium to high level.

Petroleum companies continue to increase their investment in upstream exploration and development. According to the “China Ocean Energy Development Report 2023,” in 2023, global investment in offshore oil and gas exploration and development surpassed the level before 2019, and global investment in offshore oil and gas exploration and development was about US$186.9 billion, an increase of 14% over the previous year. In 2023, the company's engineering volume continued to grow year on year, safety performance continued to improve, continued to consolidate the foundation for high-quality development, and the company's business performance grew steadily. As of the end of December 2023, the company had total assets of 43.252 billion yuan, net assets to mother of 24.795 billion yuan, and a balance ratio of 38.09%. The capital structure continued to be stable. Cash flow is abundant. Net cash flow from operating activities in 2023 was $5.125 billion, +55% year-on-year.

The company plans to distribute a cash dividend of 0.147 yuan/share in 2023, with a total proposed dividend of about 650 million yuan, accounting for 40.11% of net profit due to mother in 2023. The dividend distribution rate increased 9.77 pcts compared to 30.34% in 2022, and the total dividend amount increased 47% compared to 2022. The company focuses on shareholder returns, increases dividends, and shares the company's development results with investors.

The workload has been growing steadily. The amount of new contracts signed in '23 reached a record high in terms of workload. In terms of workload, the company implemented 72 projects above scale in 2023, of which 25 were completed during the year. In 2023, the company completed processing volume of 472,000 structural tons of steel, an increase of 25% over the previous year, and reached a record high; invested 24,800 days, a decrease of 5% over the previous year; completed 23 conduit frames and 21 conduit frames on land, installed 20 conduit frames and 21 blocks at sea, and laid 544 kilometers of submarine pipelines and 211 kilometers of submarine cables.

In terms of contract value, the amount of new contracts signed by the company in 2023 was 33.986 billion yuan, +33%. The amount of new contracts signed in China was 19.81 billion yuan, -7.4% year-on-year, and the amount of new contracts signed abroad was about 14.176 billion yuan, +233% year-on-year. The total amount of new contracts signed and the amount of new contracts signed overseas both reached record highs. The company has achieved remarkable results in developing the international market, winning bids for a number of key overseas general contracting projects such as Qatar ISND5-2, achieving an effective breakthrough from international engineering subcontractors to general contractors. The company's general contracting service capacity continues to improve, and it was ranked 68th in the “World's 250 Largest International Contractors” and 98th in the “World's 250 Largest Global Contractors” for the first time in 2023. As of the end of 2023, the company had outstanding orders of about 39.6 billion yuan, providing strong support for future workloads.

Looking ahead to 2024, the company's workload is still full, and 33 engineering projects are expected to be completed and delivered throughout the year.

The land construction workload mainly comes from traditional oil and gas engineering services such as the Wenchang 9-7 project, the Jinzhou 23-2 project, the Caofeidian 6-4 project, and the Bozhong 26-6 project, as well as overseas businesses such as the Saudi CRPO122 project, Qatar NFPSEPC02, Saudi Aramco Marjan, and the Petrol P79 project; the offshore installation workload mainly comes from traditional oil and gas engineering services such as Liuhua 11-1/4-1, Huizhou 26-6, and Jinzhou 23-2, and the offshore installation business of the Saudi CRPO122 project. The company will continue to enhance its core competitiveness, strive to achieve “stable growth with one profit and continuous optimization at five rates”, fully support and serve CNOOC to increase storage and production, and seek development opportunities and growth space in the global market.

The high level of industry prosperity combined with the parent company's expansion of upstream capital expenses. The company is expected to continue to benefit from the international market. Global oil demand will continue to grow in 2024. According to IHSmarkit's forecast, the total global upstream exploration and development capital expenditure in 2024 will exceed 600 billion US dollars, an increase of 5.7% compared to 2023. The exploration and development of international oil companies is expected to continue to increase, and the international oil service market is expected to maintain its prosperity.

In terms of the domestic market, the parent company CNOOC responded positively to the “seven-year action plan” to increase oil and gas storage and production. According to CNOOC's 2024 strategic outlook, CNOOC's total capital expenditure budget for 2024 is 1250-135 billion yuan, which is still a certain increase compared to the high base in 2023. As the oil service industry continues to be booming, the company is expected to achieve a continuous increase in revenue and profit.

Profit Forecasts, Valuations, and Ratings

The company's performance grew steadily in 23. Considering that the recovery progress of the oil service industry fell short of our expectations, we lowered the company's 24-25 profit forecast and added a 26-year profit forecast. The company's net profit for 24-26 is 18.63 (33% reduction)/21.52 (36% reduction)/2,499 billion yuan per share, respectively, corresponding to EPS of 0.42/0.49/0.57 yuan/share, respectively. We are optimistic that the oil service industry's prosperity will continue to rise. CNOOC's capital expenditure growth is good for the company's long-term development, and still maintains an “increase” rating for the company .

Risk warning: Risk of international oil price fluctuations, CNOOC's capital expenditure falling short of expectations, overseas market risk.