Event: On August 18, 2024, CNOOC released its 2024 semi-annual report. In 2024, H1 achieved operating income of 13.429 billion yuan, yoy -7.01%; realized net profit of 1.197 billion yuan, yoy +21.69%; net profit after deducting non-return to mother of 0.839 billion yuan, yoy +7.43%; net cash flow from operating activities was 2.594 billion yuan, yoy -10.83%. The main reason for the decline in revenue is the centralized delivery of overseas projects in the same period in '23. Newly contracted overseas projects are in the start-up phase. The year-on-year decrease in overseas revenue led to a slight decline in revenue, while cash flow during the construction phase of the project also decreased year-on-year.

Capital expenditure in the offshore oil and gas industry remains high, the domestic market is growing steadily, and overseas is gradually recovering. 1) The domestic offshore oil and gas industry has benefited from the strong promotion of the “Seven Year Action Plan” and continues to maintain a good growth trend.

According to CNOOC's 2024 Strategic Outlook, the 2024 capital expenditure budget is 125-135 billion yuan, an increase of about 25 billion yuan over the previous year. A number of new CNOOC projects are scheduled to be put into operation during the year to support future production growth, and CNOOC is expected to be the first to benefit. 2) The international offshore oil and gas industry is gradually recovering, driven by an increase in upstream capital expenditure. According to the “China Ocean Energy Development Report” released by CNOOC, in 2024, global offshore oil and gas exploration investment will continue to grow, with an estimated investment of more than 30 billion US dollars; investment in the development of new offshore oil and gas construction projects will increase steadily, about 78 billion US dollars; offshore oil production will grow steadily, and global offshore oil production is expected to grow to 28.5 million b/day, up 3.1% year on year. In terms of water depth, production will increase throughout the water area. Among them, production at depths of 1501-3000 meters and 0-300 meters will increase the most; from a regional perspective, the increase mainly comes from South America, the Middle East, and North America.

There are plenty of new signatures and on-hand orders, and the workload in the second half of the year was full. In 2024, H1, the company signed a new contract of 12.518 billion yuan, including 7.539 billion yuan in China and 4.975 billion yuan abroad; looking at the second quarter, new domestic contracts were 1.429 billion yuan, and overseas orders increased significantly in the second quarter. The main new overseas projects were Pohang Steel Phase IV development turnkey project, CNOOC North America MSA EPC framework agreement, Saudi Aramco CRPO125/126 conduit rack transportation and installation projects, etc. At the same time, looking ahead to the second half of the year, the company plans to complete and put into operation 35 projects. It is estimated that the construction and processing capacity may exceed 0.14 million tons, and the investment of more than 0.015 million units per day.

Actively implementing innovation-driven strategies, science and technology have reduced costs and increased efficiency significantly. The company carried out 102 scientific research projects in technical directions such as floating production equipment, underwater production systems and products, clean energy, digital intelligence, etc., and achieved major breakthroughs in core technology research, such as Asia's first cylindrical FPSO “Anemone 1” and Asia's first deep-water conduit rack “Seaji-2”; at the same time, the hierarchical classification management mechanism for scientific and technological achievements is beginning to bear fruit, promoting the accelerated transformation and application of scientific and technological achievements. The 300-meter water-depth conduit rack design and construction of 10 key technologies, composite umbilical cord cable installation technology, catheter holder, etc. 11-1, Lingshui Projects such as 25-1 have reduced technological costs and increased efficiency by 21.5 million yuan, contributing technological value to the company's completion of production and operation tasks.

Investment advice: The company is expected to achieve revenue of 33.756/37.104/40.972 billion yuan in 2024-2026 and a net profit of 1.894/2.125/2.691 billion yuan, an increase of 16.9%/12.2%/26.6% over the previous year. The current stock price corresponds to PE 13/11/9 times, respectively, maintaining the “recommended” rating.