Core views

In the first three quarters of 2024, the company's revenue declined to a certain extent when the same ratio was relatively high, but profitability moved up as the share of high-margin business increased and the share of overseas revenue increased, which in turn led to a steady increase in the company's profit. At present, the company's orders have continued to rise rapidly, and business in key overseas regions is progressing rapidly. Among them, in the Middle East market, companies have frequently received orders for oil and gas engineering projects from local national petroleum companies in the past two years, the promotion of new fracturing equipment in the North American market has been smooth, and the company's internationalization strategy has continued to be implemented.

occurrences

The company released its 2024 three-quarter report. In the first three quarters, the company achieved operating income of 80. 4.7 billion yuan, a year-on-year decrease of 8.10%, achieved net profit of 1.598 billion yuan, a year-on-year increase of 2.21%, and realized net profit after deducting 1.397 billion yuan, a year-on-year decrease of 8.66%; in the third quarter, the company achieved operating income of 3.09 billion yuan, a year-on-year decrease of 7.38%, and achieved net profit to mother of 0.51 billion yuan, a year-on-year decrease of 2.04%. Net profit after deduction was 0.477 billion yuan, a year-on-year decrease of 6.74%.

Brief review

Profitability has increased significantly, and contract liabilities have increased dramatically

On the revenue side, the company's revenue in the third quarter continued the downward trend of the first half of the year, but the decline narrowed. The reason for the decline in revenue in the first three quarters was mainly due to the KOC JPF-5 oil and gas project's confirmed revenue of about 2 billion yuan from completion of construction services within 2023. Most of this revenue was confirmed in the first three quarters, so the revenue base for the first three quarters of 2024 was relatively high. Looking ahead, the company's orders continued to grow rapidly in the first three quarters. Some of the orders in the first half of the year are expected to gradually land in the third and fourth quarter. With the EPC project revenue base relatively low in the fourth quarter of 2023, the company's revenue growth rate is expected to show a positive trend in the fourth quarter.

On the profit side, the company's net profit declined year-on-year in the third quarter, mainly due to a net exchange loss of about 0.107 billion yuan in the third quarter. If the impact of exchange was excluded, the company's actual net profit remained steady growth; in terms of gross margin, the company achieved a gross profit margin of 33.71% in the single third quarter, an increase of 3.74 pct year-on-year, mainly due to an increase in the share of profitable equipment and accessories revenue and an increase in the share of overseas revenue; in terms of net interest rates, the company achieved a net profit margin of 17.31% year-on-year increase. 1.42pct. Looking ahead, the company's profit center is expected to gradually move upward in anticipation of a steady increase in the share of overseas business in the future.

Looking at the order side, the company's contract debt in the first three quarters was 1.495 billion yuan, up 0.744 billion yuan from the beginning of the year, up 67.98% year on year at the end of the third quarter of 2023; the sharp increase in contract debt was mainly due to a significant increase in customer advance payments, and the company's orders grew rapidly.

Overseas business is expanding rapidly, and domestic business is relatively stable

Looking at overseas markets, the company has firmly implemented the internationalization strategy, and the overseas strategic layout has achieved remarkable results. The business covers more than 70 countries and regions, the share of overseas business revenue continues to rise, and overseas orders have maintained rapid growth. Looking at key markets, ① Middle East market: The Middle East region is the company's key strategic market and the overseas market with the most complete business layout. The business scope covers many fields of oil and gas related industries. Currently, the company has established long-term and stable cooperative relationships with strategic customers such as GCC National Petroleum Corporation in the Middle East region. On September 25, 2024, the company and Bahrain's national oil company BAPCO signed 7 general contracting projects for gas pressurization stations. The total amount of the contract including tax reached 0.316 billion US dollars (about 2.2 billion yuan), making it the first Chinese company to successfully enter a large-scale EPCC project in the oil and gas sector in Bahrain since the establishment of diplomatic relations between China and Brazil 35 years ago. In the future, it is expected that with the approval of the gradual implementation of key projects, the company's Middle East business is expected to grow steadily. ② North American market: The company continues to promote new energy fracturing equipment in the North American market. After the first North American electric fracturing equipment order was placed in 2023, the company accelerated the expansion of the North American plant. Currently, on the basis of the existing plant, the company is further promoting the development of electric drive fracturing and its supporting equipment, gas turbine generator set equipment, and related accessories such as plunger pump heads and pump accessories. At the same time, it continues to strengthen Jerry's sales, R&D and after-sales service capabilities in North America to meet future market needs. Currently, as the renewal cycle of existing equipment in the North American market approaches and demand for the replacement of old equipment increases, the company's electric driven fracturing equipment is expected to obtain new business opportunities.

Looking at the domestic market, in addition to shale oil and gas, the company is also actively developing unconventional oil and gas extraction businesses such as deep coal and gas. This year, the company started deep coal and gas fracturing construction work on a platform in Shanxi Province. In response to technical challenges such as complex geology and low porosity of coal and gas reservoirs, the company adopted an all-electric drive fracturing operation mode and selected a complete set of electric fracturing equipment with high power, high pressure, and large displacement characteristics. It is equipped with 14 6000 electric fracturing skids, 2 electric sand mixers, and 2 radio instrument drives. The expansion of this type of business helps the company expand the usage scenarios of more products and supports relatively stable domestic business performance.

Investment proposal: The company is expected to achieve operating income of 14.597 billion yuan, 17.055 billion yuan, and 19.488 billion yuan respectively from 2024 to 2026, up 4.92%, 16.84%, and 14.26% year on year, respectively. It is expected to achieve net profit of 2.704 billion yuan, 3.17 billion yuan, and 3.655 billion yuan respectively, corresponding to a year-on-year increase of 10.17%, 17.25%, and 15.30%, respectively PE was 13.18x, 11.24x, and 9.75x, respectively, maintaining a “buy” rating.

Risk analysis

1. Risk of cyclical fluctuations in the oil and gas industry. The company's products are mainly used in oil and gas related industries such as traditional oil and gas extraction and unconventional shale oil and gas extraction. Therefore, cyclical fluctuations in the industry have an important impact on the company's sales. Currently, geographical friction has a great impact on raw material prices and oil prices, increasing the uncertainty of the energy layout.

2. Risk of fluctuations in raw material prices. Affected by international macroeconomic effects and fluctuations in the cost of upstream raw materials, if the cost side price rises significantly, it will have a certain impact on the company's future gross profit.

3. Risk of exchange rate fluctuations. The company's exports account for a relatively high share, and export revenue is mainly settled in US dollars. If the RMB appreciates rapidly in the short term, it may directly lead to a decrease in the company's assets and revenue reflected in the RMB currency.