Description of the event

The company disclosed its 2023 annual report. During the reporting period, the company achieved operating income of 30.752 billion yuan, an increase of 4.75% year on year; net profit to mother was 1,621 billion yuan, an increase of 11.08% year on year. In addition, the cash disbursement was 650 million yuan, accounting for 40.11% of the net profit attributable to shareholders of listed companies in 2023.

Incident comments

The main reason for the increase in the company's revenue and profit is that as domestic and foreign project construction progresses, the overall workload completed continues to grow. In particular, the amount of land construction work is growing rapidly. In addition, in 2023, the company calculated impairment losses totaling 243 million yuan, including asset impairment losses of 46 million yuan and credit impairment losses of 197 million yuan. Net profit attributable to shareholders of listed companies decreased by approximately $243 million.

The project progressed steadily, the workload reached a new high, and various fields went hand in hand to achieve breakthroughs. During the reporting period, 472,000 tons of steel were processed throughout the year, an increase of 25% over the previous year, another record high; 24,800 ship days were invested, a decrease of 5% over the previous year; 23 conduit frames and 21 blocks were completed on land; 20 conduit frames and 21 conduit frames were installed at sea, and 544 kilometers of submarine pipelines and 211 kilometers of submarine cables were laid.

Market development was actively promoted, and the total amount of contracts and overseas contracts reached record highs. During the reporting period, the company achieved a market commitment of 33.986 billion yuan, an increase of 32.55% over the same period last year. Among them, the overseas market contract amount was 14.176 billion yuan, an increase of 233% over the previous year, both of which reached record highs. Second, it won the bid for a number of key overseas general contracting projects, such as Qatar's ISND5-2, to achieve effective breakthroughs from international engineering subcontractors to general contractors, and market development effectively guarantees the implementation of strategic goals. As of the end of 2023, outstanding orders of about 39.6 billion yuan were outstanding, providing strong support for future workloads.

Offshore oil and gas resources have huge potential, and CNOOC is expected to fully benefit from increasing storage and production and increasing capital expenditure. In terms of the global oil and gas detection rate, ultra-deep water is far lower than that of land. The detection rates for terrestrial oil and natural gas are 36.72% and 47.01%, respectively. The detection rates for ultra-deep-water oil and natural gas are only 7.69% and 7.55%. The potential for marine oil and gas resources is huge, and ultra-deep water is the future trend.

Domestically, the overall quality of proven oil and gas reserves has deteriorated, and the overall quality of marine reserves is better. In the future, whether in terms of quality or reserves, offshore, deep-water, and unconventional oil and gas are important fields and directions for future oil and gas exploration and development. The total capital expenditure budget of CNOOC in 2024 is 125 to 135 billion yuan. Compared with the high base in 2023, there is still a certain increase, which will guarantee the prosperity of the offshore oil service industry for a certain period of time. In the future, as China continues to increase its offshore oil field exploration and development efforts, it will continue to benefit corresponding supporting oil and gas service and equipment suppliers, and offshore oil engineering will fully benefit.

State-owned enterprises reform external catalysts, and increasing dividends will help increase the competitiveness of companies. A new round of state-owned enterprise reform will begin in 2023. The specific requirements of the State Assets Administration Commission this year are “stable growth with one benefit and continuous optimization of the five rates.” Furthermore, market value management is included in the assessment standards for central enterprise leaders, which will greatly enhance the core competitiveness of enterprises. As a subsidiary of CNOOC Group, the company may also pay more attention to asset quality and return on assets in the future, steadily increase profits, pay more attention to improving free cash flow, and gradually increase the amount of cash dividends. This time, the dividend rate was over 40%, and the total amount of dividends reached a record high in 2016. The dividend rate is expected to remain high in the future.

The company's 2024-2026EPS is expected to be 0.49 yuan, 0.61 yuan, and 0.78 yuan, respectively. The PE corresponding to the closing price on March 19, 2024 was 12.84X, 10.26X, and 8.00X, respectively, maintaining a “buy” rating.

Risk warning

1. The sharp drop in international oil prices;

2. Risks arising from international market operations.