Incidents:

Recently, Mr. Li Chundi, the chairman of the company, or the enterprise under his control, plans to increase the company's holdings in unlimited circulation of A-shares through centralized bidding transactions through the Shanghai Stock Exchange system within 12 months. The increase in holdings shall not be less than RMB 50 million and not more than RMB 100 million.

Executives' increase in holdings shows confidence, and will not reduce their holdings during the period of increase

According to the company's announcement, the chairman's substantial increase in the company's shares is mainly based on his high recognition of the company's long-term investment value and future development prospects, paying attention to and safeguarding the interests of small and medium-sized shareholders, and promoting the company's sustainable, stable and healthy development. Furthermore, the chairman of the company promised to complete this increase plan within the above implementation period, and promised not to reduce the company's shares during the increase period and the statutory period.

The Wensu block continues to increase storage and production

Onsuku currently has more than 400 wells, and the number of wells and production are constantly rising. The company is speeding up the pace of integrated implementation of Kekeya Oilfield exploration and construction in the Wensu block, improving the deployment of the Kekeya Oilfield well network, and doing work such as putting new wells into operation and measures to further increase Wensu block production. The company has now basically identified and initially estimated 10.92 million tons of petroleum geological reserves on the market in the F1 fracture zone of Kekeya Oilfield, and will prepare reserve reports in a timely manner. In addition, the company's Wensu Phase II 817 square kilometer exploration project continues to advance.

Overseas oil and gas block expansion accelerates

In November 2023, the company completed the Tenge Oilfield acquisition procedure, indirectly held 53.6% of the Tenge Oilfield interest, and consolidated it at the end of the month. In May 2024, TOGHI's equity transaction was approved by the Ministry of Energy of Kazakhstan and became a holding subsidiary of the company. The company indirectly held 87% interest in the coastal area. The company is speeding up the implementation of horizontal wells in the Tenge Oilfield and deploying coastal oilfield test drilling teams to form a certain initial production capacity. Meanwhile, in May 2024, the company successfully won the bid for development rights for the EBN block and MF block of the Iraqi Ministry of Petroleum. The block area is 231 and 1,073 square kilometers, respectively, and is expected to continue to contribute to the increase in performance.

Profit Forecasts, Valuations, and Ratings

We expect the company's revenue for 2024-2026 to be 4.7/5.5/6.3 billion yuan, with corresponding growth rates of 25%/18%/15%, respectively, net profit to mother of 1.3/1.52/1.71 billion yuan, corresponding growth rates of 60%/17%/13%, EPS 3.23/3.79/4.28 yuan/share, respectively, 3-year CAGR of 28%, and current price corresponding to 2024 PE 6.3 times. In view of the rapid progress of the company's core exploration business and large room for growth, we maintain the company's “buy” rating.

Risk warning: sharp drop in oil prices, undermining progress in Wenbei Oilfield, falling short of expectations, oil and gas block exploration results falling short of expectations, geopolitical risk of overseas block business, risk of not being able to complete the increase in holdings due to reasons