Incidents:

The company released its 2024 semi-annual report. With 2024H1, the company achieved total revenue of 13.4 billion yuan, -7% year-on-year; realized net profit of 1.2 billion yuan to mother, +22% year-on-year. In a single quarter of 2024Q2, the company achieved total operating income of 7.758 billion yuan, -3.57%, and +37% month-on-month; net profit to mother of 0.722 billion yuan, +35% year-on-year and +52% month-on-month.

Comment:

Net profit from 24H1 increased steadily. Net assets and free cash flow increased year-on-year by 2024H1. The average price of Brent crude oil was 83.42 US dollars/barrel, +4.4% year over year. Overall, it remained at a medium to high level. Petroleum companies continue to increase their investment in upstream exploration and development, and the global offshore oil and gas engineering industry is booming.

The company's engineering volume continued to increase year-on-year, important engineering projects were progressed with high quality and efficiency, and safety performance continued to maintain an excellent level of safety performance. The “sea-based” deep-water series products were upgraded, the industry voice in the high-end FPSO construction field was further enhanced, the transformation of clean energy business and green energy was carried out in an orderly manner, overseas development momentum was strong, and the role of an international general engineering contractor continued to be consolidated. As of the end of June 2024, the company's net assets attributable to shareholders of listed companies were 25.3 billion yuan, +4.7% year over year, and the balance ratio was 40.82%, and +1.01 pct year on year. 2024H1 achieved free cash flow of 3.1 billion yuan, +70.6% year over year. The company's assets have grown steadily, efficiency has been greatly improved, cash flow is abundant, and the development trend has been maintained.

The workload reached a new high during the same period, and production peaked in the second half of the year

In terms of workload, the company completed 0.2713 million tons of steel processing in the first half of the year, an increase of 16% over the previous year, a year-on-year increase of 0.0114 million days, a year-on-year decrease of 12%; completed 35 conduit frames and 11 blocks on land, installed 22 conduit frames and 9 blocks at sea, and laid 168 kilometers of submarine pipelines and 42 kilometers of submarine cables. 2024H1's offshore shipboard investment and undersea operations declined year-on-year, but the number of conduit frames and blocks installed at sea increased dramatically, and the number of large-scale structures installed on ships increased 110% year-on-year. In the second half of 2024, the company is still facing a heavy workload. 35 projects are planned to be completed and put into operation. 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. The company will focus on capacity building, strengthen project operation control, strengthen lean management, allocate and use resources scientifically and rationally, and efficiently complete various production and construction tasks.

Market development is progressing steadily, and overseas market expansion has achieved remarkable results

In terms of contract amount, the amount of new contracts signed by the company 2024H1 was 12.518 billion yuan, -30%; the amount of new contracts signed in China was 7.543 billion yuan, or -31% compared to the same period; the amount of new contracts signed abroad was 4.975 billion yuan, or -28%. The amount of new contracts signed overseas accounted for 39.74% of the total number of new contracts signed in the first half of the year. The company's overseas market development work is progressing steadily, providing a strong guarantee for continuing to promote the high-quality development of the company's international business and laying a solid foundation for achieving its goals throughout the year. As of the end of June 2024, the total number of active orders was approximately 38.8 billion yuan, providing strong support for the company's continued business development.

The company's domestic market continued to maintain a steady development trend. The oil and gas business signed a new contract amount of 7.539 billion yuan in the first half of 2024. Major domestic projects include the Bozhong 26-6 Oilfield Development Project, the Bozhong 19-2 Oilfield Development Project, the Panyu 11-12 Oilfield/Panyu 10-1 Oilfield 10-1 Oilfield Joint Development Project, and the Suizhong 36-2 Oilfield 36-2 Block Development Project.

The company has always been confident in international development, continuously strengthened overseas market expansion efforts, and is committed to promoting the steady and far-reaching high-quality development of the company's overseas business. The company signed major overseas projects in the first half of the year, including the Pohang Steel Phase IV development turnkey project, CNOOC North America's MSA EPC framework agreement, and Saudi Aramco's CRPO125/126 conduit rack transportation and installation project.

The high level of industry prosperity compounded the parent company's expansion of upstream capital expenses, and the company is expected to continue to benefit

In terms of the international market, global oil demand will continue to grow in 2024. According to IHSmarkit's forecast, the total global upstream exploration and development capital expenditure in 2024 will exceed 600 billion US dollars, an increase of 5.7% over 2023. The exploration and development of international oil companies is expected to continue to increase, and the international oil services market is expected to maintain its boom. In terms of the domestic market, the parent company CNOOC has responded positively to the “seven-year action plan” to increase oil and gas storage and production. According to CNOOC's 2024 strategic outlook, the total capital expenditure budget of CNOOC in 2024 is 125-135 billion yuan, which is still a certain increase compared to the high base in 2023. As the oil service industry continues to be booming, the company is expected to achieve a continuous increase in revenue and profit.

Profit Forecasts, Valuations, and Ratings

The company's performance is in line with expectations, and the oil service industry continues to recover. CNOOC's capital expenditure growth favors its oil service companies. We are optimistic about the company's long-term development and maintain the company's profit forecast. The company's net profit for 24-26 is 1.863/2.152/2.499 billion yuan, respectively, corresponding to EPS of 0.42/0.49/0.57 yuan/share, respectively, maintaining the company's “incremental” rating.

Risk warning: Risk of international oil price fluctuations, CNOOC's capital expenditure falling short of expectations, overseas market risk.