Incident: CNOOC Services released its 2024 mid-year report: 2024H1 achieved operating income of 22.529 billion yuan, +19.4%; net profit to mother of 1.592 billion yuan, +18.9%; net non-net profit of 1.604 billion yuan, +25.0% year over year; net cash flow from operating activities of 1.715 billion yuan; basic earnings per share of 0.33 yuan, +17.9% year over year. Among them, Q2 achieved revenue of 12.381 billion yuan in a single quarter, +18.85% year over year; net profit to mother was 0.957 billion yuan, +2.34% year over year.

Leveraging the advantages of the entire industry chain, CNOOC's leading position is unshakable in the short term, and all sectors of business are developing smoothly. 2024H1, the company continues to deepen its international market development capabilities on the basis of fully guaranteeing increased domestic storage and production, and the main business workload in various sectors has increased markedly. 1) Oilfield technical services: Continuing high growth as the main revenue force. Oilfield technical services are the company's main business with the highest share of revenue (2024H1 accounts for 56.95%). The volume and performance of 2024H1's oilfield technical service operations maintained high growth. The main business line operations in the oil technology service sector continued to grow year on year. The revenue of the 2024H1 sector was 12.83 billion yuan, +20.8% over the same period last year. The company broke through the Brazilian market, and its wholly-owned overseas subsidiary COSL Drilling Brasil Ltda.

A service contract was signed with a Brazilian customer in a drilling and well repair project on a drilling platform (operation is expected to begin in 2025). With the deepening implementation of the technology-driven strategy, the international market for oilfield technology services is expected to expand steadily in the future. 2) The volume and price of the drilling sector have risen sharply, and the daily cost of the drilling platform continues to be repaired. The company's drilling service revenue in the first half of the year was 6.42 billion yuan, an increase of 18.2% over the previous year. The number of days the drilling platform was 8,961 days of operation, an increase of 2.0%. The daily usage rate of the platform increased by 1.4 pct to 80.8% year over year. In terms of price, the daily rate continued to rise, reflecting the high boom in the industry. The daily fee for the 2024H1 drilling platform increased 4.9% year over year to 0.086 million US dollars/day. The average daily fee for jack-up and semi-submersible drilling platforms was 0.074/0.134 million US dollars/day, respectively, +7.2%/+8.9% year on year. The drilling business is an asset-heavy business. It has high financial and technical barriers, and future performance is expected to improve further. 3) The shipping sector comprehensively strengthened its offshore ship service coordination capabilities, and the number of operating days increased 19.6% year on year; service revenue was 2.18 billion yuan, up 14.2% year on year. 4) The revenue from geophysical collection and engineering survey services was 1.1 billion yuan, an increase of 20.4% over the previous year; the volume of 3D acquisition operations in the geophysical sector was 16,370 square kilometers, an increase of 189.5% over the previous year, achieving leaps and bounds.

Gross margin has increased significantly, and cost control is good. 2024H1, the company's gross margin was 16.4%, +1.6 pct year on year; net margin was 7.6%, -0.1 pct year on year; the main exchange earnings were high during the same period, and the financial expense ratio was +0.5 pct year over year. 2024Q2, the company's gross margin was 17.2%, +0.8 pct year on year; net margin was 8.2%, -1.4 pct year on year; the period expense ratio was 6.5%, +1.3 pct year on year.

High and medium oil prices drive an increase in upstream capital expenditure, and the offshore oil, gas, oil and service industry continues to prosper. According to Spears & Associates, the size of the global oilfield services market will grow 7.1% year over year in 2024, and the industry is growing strongly. As a global integrated marine oil service leader, the company fully benefits from the boom in the industry, uses the advantages of a complete industrial chain to build an integrated brand for the entire oil field life cycle guided by customer needs, and actively plans overseas market layout during the period of industry growth.

Two platforms affected by the Saudi suspension have re-signed new orders. Affected by Saudi Arabia's suspension of platforms in April 2024, CNOOC was suspended from 4 drilling platform contracts. Currently, 2 of these platforms have received new order contracts. 1) Zhenhai 6 has locked in domestic operations and is expected to start operations at the end of August/beginning of September; 2) SEEKER drilling platforms locked in a drilling platform service contract with a well-known Southeast Asian oil company. The contract commencement window is 2024/12/15-2025/1/15. The contract period is 3 years. Since the industry is booming, it is expected that the remaining 2 platforms will also be rapidly digested by the market in the future.

Company profit forecast and investment rating: As a global leader in integrated marine oil services, the company's performance is growing steadily.

There have been many breakthroughs in oilfield technical services, demonstrating the growth of this cycle. The drilling sector has fully benefited from domestic energy insurance and supply policies, and its prosperity is higher than that of foreign oil service companies. Looking forward to the future, the company's growth space has been opened up under two-wheel drive for oil technology services and drilling operations. The company relies on its major customer CNOOC to provide strong support for its domestic business. Oilfield technical services benefit from technological breakthroughs and import substitution, and are expected to maintain good growth. We expect the company's net profit to be 34.25, 43.75, and 5.559 billion yuan respectively in 2024-2026, with corresponding EPS of 0.72, 0.92 and 1.16 yuan, respectively. Give it a “Highly Recommended” rating.

Risk warning: Fluctuations in crude oil and natural gas prices; fierce market competition due to geopolitical conflicts; upstream oil and gas capital expenditure falling short of expectations; risk of overseas business expansion.