Incidents:

The company released its 2023 annual report. In 2023, the company achieved total operating revenue of 49.3 billion yuan, +3.19% year-on-year, and realized net profit of 3.1 billion yuan, or +28% year-on-year. In the 2023Q4 single quarter, the company achieved total operating revenue of 17.7 billion yuan, +7.86% year over month, and realized net profit of 936 million yuan to mother, +63% year over year, and +16% month on month.

Comment:

The three major industries have developed steadily, and the 23-year performance has reached a record high

In 2023, the implementation of the seven-year action plan to increase domestic oil and gas storage and production entered its fifth year. Domestic crude oil production reached 209 million tons, natural gas production was about 229.7 billion cubic meters, and the annual increase in production exceeded 10 billion cubic meters for 7 consecutive years. Parent company CNOOC achieved total oil and gas production of 678 million barrels of oil equivalent, +8.7% year over year. The company achieved net profit of 3.1 billion yuan, an increase of 28% over the previous year, and its operating performance reached a record high.

The company tightly grasps the favorable opportunity for petroleum companies to increase storage and production, fully guarantees oil and gas development and production needs, focuses on advanced oil and gas technology, and continues to strengthen the competitive advantage of the industry. The energy technology service industry's revenue ratio is +21%; deeply grasps the new trends of low-carbon energy saving and digital development, and actively lays out the new energy, green and low-carbon industrial digitalization and new materials industries to build service capabilities in an orderly manner, such as offshore wind power, photovoltaics, CCUS, energy-saving products, etc., and actively respond to price fluctuations in the industry such as offshore wind power, photovoltaics, CCUS, and energy-saving products. Stronger and more resilient to development, the revenue of the energy logistics service industry was -8.71% year-on-year.

In 2023, the company's workload in the three major industries continued to grow. In the energy technology service industry, the company's smart injection market share increased by 19%, the market share of underground lift products increased by 24%, the operation rate of FPSO and LNG carriers by 100%, the autonomy rate of chemical formulation collection and transportation increased to more than 80%, and the production autonomy rate increased to more than 65%. In the low-carbon environmental protection and digital industry, the new energy technology service workload increased by 45.58% year on year, and the digital operation business workload increased by 25.72% year on year. In the energy logistics service industry, the supply of materials and fuel for offshore operations increased 7.47% year over year as upstream workload increased.

Significant results have been achieved in improving quality and efficiency. Strengthening cash management greatly improved the company's gross margin in 2023 +0.93 pct year on year, profit margin on costs and expenses +1.78 pct year on year, and ROE +2.04 pct year over year. The company insists on “all costs can be reduced”, focusing on integrating efforts in the three areas of improving quality and efficiency, reducing “three fees”, and reducing maintenance costs, continuously promoting lean cost management, continuously improving the “1+N” comprehensive budget management system and four types of business single project pre-accounting and control models, compacting the project cost management responsibilities of grass-roots units, and increasing the marginal contribution to project profits.

The company strengthened accounts receivable and inventory management to improve the efficiency of asset use. Overall, asset profit and turnover indicators improved. Accounts receivable and inventory balances in 2023 decreased by 17.22% and 12.02% year on year, respectively, and turnover increased 0.24 times and 1.01 times year on year, respectively. Thanks to the decline in the company's inventory and accounts receivable, the company's cash flow increased higher than net profit to mother in '23, achieving net cash flow of 7.7 billion yuan from operating activities, +4.3 billion yuan year on year, and free cash flow of 7.3 billion yuan, and a significant improvement in cash flow of +6.5 billion yuan over year. In terms of dividends, the company plans to pay a dividend of 1.10 yuan (tax included) for every 10 shares in 2023, with a dividend rate of 36.29%, an increase of 0.53 pct over the previous year. The dividend rate calculated based on the stock price at the end of 23 is 3.9%, and the overall dividend level remains stable.

Focus on the main business, increase storage and production guarantee capabilities and continue to improve

The company focuses on core functions, enhances core competitiveness, always sticks to its main business, and continuously optimizes and manages inefficient and ineffective businesses. The company deeply grasps new trends in industry development, promotes the optimal layout of the industry, actively cultivates the development of new materials industries, green and low-carbon industries, and unswervingly promotes the development of strategic emerging industries and enhances new quality productivity. The company focuses on production base construction and full-life cycle management of large-scale equipment. It promotes 20 key construction projects throughout the year, and all annual milestones have been achieved. China's first new intelligent FPSO “Offshore Oil 123” was successfully put into operation, and China's second offshore mobile self-installing wellhead platform “Offshore Oil 165” was put into operation ahead of schedule. Construction of the Tianjin Marine Equipment Intelligent Manufacturing Base (Phase I) project has begun, the “Offshore Oil 302” LNG carrier was built and launched, and the first ship of the medium- to long-term FOB resource-supporting LNG carrier project (Phase I) has been completed and is about to be delivered.

CNOOC is promoting the “increase in storage and production” work to help the company develop the global oil service market in the long term. The parent company CNOOC responded positively to the “seven-year action plan” to increase oil and gas storage and production, and set production targets for 2024 and 2025 at 700-720 and 780-800 million barrels of oil equivalent, respectively. The central production growth rates for 2024 and 2025 were 4.7% and 11.3%, respectively. The company's business revolves around the offshore oil production process, provides comprehensive production and sales support, strengthens the leading role of scientific and technological innovation, and continues to deepen actions to improve quality, reduce costs and increase efficiency, and is expected to achieve a continuous increase in revenue and profit.

Profit Forecasts, Valuations, and Ratings

The company's performance and cash flow have increased dramatically in 23 years, the oil service industry has maintained its prosperity, and the domestic “increase in storage and production” work continues to advance, and the company is expected to continue to benefit. We raised the company's 24-25 profit forecast and added a 26-year profit forecast. The company's net profit for 24-26 is 35.48 (7% increase)/40.62 (5% increase)/4.516 billion yuan, respectively, and the corresponding EPS is 0.35/0.40/0.44 yuan/share, respectively, maintaining the company's “buy” rating.

Risk warning: the risk of fluctuations in international oil prices, the growth of CNOOC production falling short of expectations, risks in overseas markets.