Core views

Lead the offshore oil and gas engineering circuit and increase dividends to return shareholders. As one of the largest and most powerful general contractors for offshore oil and gas projects in the Asia-Pacific region, the company relies on CNOOC Group. On the basis of traditional offshore engineering, the company expanded its business into clean energy fields such as onshore LNG engineering, driving the company's net profit to reach 475 million yuan in 2024Q1. Meanwhile, in 2023, the company's dividend distribution ratio increased by about 9.77pct to 40.11% year-on-year. In the future, as the company's performance grows, the level of dividends may continue to rise.

High oil prices have helped the oil service boom improve, and industry leaders continue to benefit. OPEC+'s insistent production cuts provided strong bottom support for oil prices. At the same time, the increase in US shale oil production may have slowed sharply compared to 2023. The tight balance between crude oil supply and demand is expected to be maintained, supporting high oil prices and driving the continued recovery of the global oil services market. As the only large-scale offshore oil and gas engineering general contracting company in China, the company is expected to continue to benefit.

Traditional business advantages were consolidated, and overseas markets continued to expand. The offshore oil and gas field development industry has high entry barriers. The company attaches importance to R&D, accounting for about 4% of R&D in the past two years, which is higher than that of comparable companies. At the same time, the company relies on CNOOC Group. In the context of the seven-year action plan, CNOOC's actual capital expenditure CAGR reached about 16% in 2018-2023, continuing to benefit the company's domestic business. At the same time, the company relied on the “Belt and Road” to accelerate overseas market development. In 2023, the overseas market contract amount was 14.176 billion yuan, a record high. As the company's EPCI turnkey capabilities were recognized by Middle Eastern owners, there is plenty of room for improvement in overseas market share.

By speeding up the deployment of clean energy, high-quality growth of the racetrack can be expected. The dual carbon target is compounded by the energy security background, and demand for natural gas is expected to grow in the long term. The company is speeding up the deployment of clean energy fields such as land-based LNG projects, increasing the revenue share of non-offshore projects, mainly LNG projects, from 8% in 2019 to 36% in 2023, and increasing the share of gross profit from 6% in 2019 to 39% in 2023. In the future, with the formation of the company's total contracting capacity for natural gas liquefaction plants and the expansion of high-end businesses such as FSRU and FLNG, the profit contribution is expected to increase further.

Profit forecasting and investment advice

We believe that CNOOC's “seven-year action plan” to increase storage and production supports the steady growth of the company's traditional offshore engineering business. At the same time, the company is adapting to the international low-carbon development trend and speeding up the layout of clean energy businesses such as LNG engineering and offshore wind power, and there is plenty of room for future performance improvement. We expect the company's net profit to be 2,058, 23.81, and 2,783 billion yuan respectively in 2024-2026, and the corresponding PE will be 13 times, 12 times, and 10 times, respectively. For the first time, coverage is given a “buy” rating.

Risk warning

Risk of large fluctuations in oil prices, risk of international operation, risk of exchange rate changes, etc.