Key investment points

Incident: The company released its 2023 annual report: achieved operating income of 49.3 billion yuan (+3% year over year), net profit to mother of 3.08 billion yuan (+28% year over year), net profit of non-return to mother of 2.86 billion yuan (+36% year over year). Among them, 2023Q4 achieved operating income of 17.7 billion yuan (YoY +8%, +62% month-on-month), net profit of 940 million yuan (YoY +63%, +16% month-on-month), and net profit of 890 million yuan after deducting non-return to mother (+87% YoY, +17% month-on-month). In 2023, the company's operating cash flow was 7.745 billion yuan (+127% year-on-year), and cash reserves were sufficient. Overall, the company's operating conditions are excellent.

Diversified service capabilities have been steadily improving, and the three major industries have developed steadily: 1) Energy technology service industry: In 2023, the company firmly grasped the favorable opportunity for oil and gas companies to increase storage and production requirements, making every effort to guarantee oil and gas development and production needs. The market share of intelligent injection products was +19%, the market share of underground lift products was +24%, and the operation rate of FPSO and LNG carriers was 100%. 2) Low-carbon environmental protection and digital industry: The company deeply grasps new trends in low-carbon energy saving and digital development, and increases forward-looking research on the industry. New energy technology service workload was +45.58% year over year, and digital operation business workload was +25.72% year over year. 3) Energy logistics service industry: In 2023, due to the overall decline in international oil prices, the sector's revenue declined year-on-year. With the increase in upstream workload, the supply of materials and fuel for offshore operations was +7.47% year-on-year, and the overall efficiency of the industry is improving.

The construction of key projects is progressing steadily, and future development is worth looking forward to: the company promoted 20 key construction projects throughout the year, and all annual milestones were 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. Furthermore, many projects are still progressing steadily, and future developments are worth looking forward to.

The parent company CNOOC raised capital expenditure to increase storage and production to help the company's long-term development: 1) In terms of capital expenditure: In 2024, CNOOC increased its capital expenditure, with a total budget of 1250-135 billion yuan, of which capitalization expenses for exploration, development, and production are expected to account for 16%, 63%, and 19% respectively; China and overseas are expected to account for 72% and 28% respectively. 2) In terms of production: Under the impetus of the domestic policy of increasing storage and production and the “seven-year action plan” of CNOOC Group Co., Ltd., CNOOC will maintain a steady increase in crude oil production. In 2023, CNOOC's net oil and gas production reached 678 million barrels of oil equivalent; in 2024-2026, CNOOC's oil and gas production targets are 700-720, 780-800, and 810-830 million barrels of oil equivalent, respectively. The parent company, CNOOC, will increase its capital expenditure, which will increase the workload at sea, which is conducive to boosting the company's performance.

Focus on dividend payouts: In 2023, the company plans to pay 1.1 yuan for 10 shares, with a total dividend amount of 1,118 billion yuan, and a dividend ratio of about 36.3%. At the closing price of April 17, 2024, the company's dividend rate was 2.6%.

Profit forecast and investment rating: Based on the progress of the company's three major industries & construction projects, we adjusted the company's net profit of 3.6 billion yuan and 3.9 billion yuan respectively (previously 3.2 billion yuan and 3.8 billion yuan), and added the 2026 net profit to 4.3 billion yuan. Based on the closing price on April 17, 2024, the corresponding PE is 12, 11, and 10 times. The company's business is diversified, its profitability is remarkable, and it maintains a “buy” rating.

Risk warning: macroeconomic fluctuation risk; oil price fluctuation risk; market competition and operating risk