Domestic fracturing equipment and cementing equipment leaders, 24H1 new orders were +18.9% year-on-year. According to the company's announcement, in 2023, the company's fracturing equipment and cementing equipment accounted for more than 50% of the country's share, ranking as the leading market share. 24H1 achieved revenue/net profit to mother of 4.96/1.09 billion yuan, -8.5%/+6.8% year-on-year, and maintained positive profit growth. Benefiting from high overseas demand, 24H1 signed a new order of 7.18 billion yuan, +18.9% over the same period last year.

Domestic: The capital expenditure of “three barrels of oil” remains steady, and the company is expected to benefit from the expansion of demand for electric driven fracturing. The unconventional oil and gas boom is high: the capital expenditure budget for “three barrels of oil” in '24 was 561 billion yuan, maintaining a high level; according to Rystad Energy's forecast, domestic production of compact/shale oil and unconventional natural gas in 2025 will increase by 15.9 or 10.1 pct compared to 23 years. According to the “Analysis of Domestic Electric Drive Fracturing Economics and Constraints”, electric drives can reduce purchase costs and energy consumption costs by 45% and 31% compared to diesel drive standard units. The cost advantage is outstanding, and the penetration rate is expected to continue to increase. The company's domestic market share of fracturing equipment exceeds 50%, and CNPC purchased a total of 37 electric driven fracturing equipment in mid-23. It has a strong competitive advantage in the domestic market and is expected to benefit from the wave of electric drives replacing diesel drives.

Overseas layouts continue to be fulfilled, and orders for electric drive fracturing in North America are accelerating. 1) Large space and high prosperity: According to Spears & Associates, the overseas oil service market exceeded 270 billion US dollars in '23, accounting for more than 90% of the world. According to the company's announcement guidelines, the capital expenditure of leading overseas oil and gas companies will reach 117.92 billion US dollars in 24, +4.1% over the same period last year. 2) The in-depth layout of the Middle East radiates into Central Asia. The equipment and EPC projects have blossomed: the company's high-end equipment such as cementing and coiled tubing is highly competitive, and its share in the Middle East market is increasing year by year; after receiving the largest single equipment order in Central Asia, 24H1 received a 2.2 billion yuan natural gas EPC order from Bahrain in September. 3) Demand in North America is booming, and electric drive fracturing has successfully broken through: We estimate that North American electric drive fracturing equipment renewal demand in 24-26 will be 1.58/2.21/4.23 billion yuan. The company's electric driven fracturing equipment has a maximum water horsepower of 8,000 HHP, which is superior to leading overseas companies. In July '24, the company also received an order for electric drive fracturing equipment from an old North American customer, and electric drive fracturing successfully broke through. 24H1's overseas revenue was 2.38 billion yuan, with a gross margin of 37.2%, higher than the domestic market share of 34.6%. It is expected that with the increase in the market share of high-end equipment in the Middle East and the release of electric drive fracturing orders in North America, overseas revenue is expected to continue to increase, driving the company's overall profitability.

Profit forecasts, valuations, and ratings

We expect the company's revenue for 24-26 to be 14.286/16.916/19.164 billion yuan, and net profit to mother of 2.703/3.208/3.731 billion yuan, corresponding PE of 11/10/8 times. The company was given 14 times PE in 24 years, corresponding to a target price of 36.97 yuan. For the first time, coverage was given a “buy” rating.

Risk warning

Risk of large fluctuations in crude oil and natural gas prices; risk of rising raw material prices; risk of exchange rate fluctuations.