3Q24 results fall short of market expectations

The company announced 1-3Q24 results: operating income of 33.66 billion yuan, up 14.1% year on year; net profit to mother of 2.44 billion yuan, up 7.5% year on year.

The company's 3Q24 revenue was 11.13 billion yuan, up 4.7% year on year; net profit to mother was 0.85 billion yuan, down 8.8% year on year. We believe that the reduction in the company's exchange gains and losses by 0.2 billion yuan was the main reason why profits fell short of expectations.

The company's 3Q24 jack-up drilling platform operated for 3,557 days, a decrease of 2% month-on-month. Since the two semi-submersible platforms were undergoing rehabilitation, the semi-submersible drilling platform operated for 648 days, a decrease of 32% month-on-month.

Development trends

The oil technology sector's profit is expected to grow rapidly in 2024-25. According to the company's performance conference call, the company's 3Q24 oilfield technology profit ratio reached 77%, and revenue growth was steady. We estimate that the gross profit of the oilfield technology sector was about 18%, maintaining a high level. We believe that the oil technology sector is expected to continue to support the company's continued profit growth in 2024-25.

3Q24 The usage rate of semi-submersible platforms declined. Affected by weather factors, the company's 3Q24 semi-submersible drilling platform operated for 2,571 days, a year-on-year decrease of 9.7%, and the daily usage rate of the semi-submersible platform was -15 ppt to 63% year over year; we think this is a one-time factor. At the same time, we estimate that the operating interval between the company's two drilling platforms also reduced the number of operating days by more than 100 days.

The drilling business is expected to rise sharply in volume and price in 4Q24 compared to the previous month. According to the company's management guidelines, of the company's 4 jack-up ships affected by the Saudi stop, 1 has already started operation, 1 will start operation at the end of the year, and the other 2 are more likely to obtain a platform operation contract in 4Q24. At the same time, the company has locked in a contract to start operating for Brazilian National Petroleum in 2025, and the rate is expected to exceed 0.25 million US dollars/day, and we believe the company will receive a higher gross profit.

The balance ratio of the company is generally stable. According to the company's announcement, the company's capital expenditure plan for 2024 is 7.4 billion yuan, 70% of which is for the equipment sector; we expect that as the company gradually completes equipment purchases, the company's balance ratio is expected to remain basically stable in 2024, and the annual depreciation estimate is about 6 billion yuan.

We expect the company's capital expenditure to gradually decline in 2025.

Profit forecasting and valuation

We maintain our 2024/25 earnings forecast unchanged. A-shares remain outperforming the industry rating and target price of 16.00 yuan, corresponding to 25.1 times the price-earnings ratio of 2024 and 20.5 times the price-earnings ratio of 2025, with 4.1% upside compared to the current stock price. H shares remain outperforming the industry rating and the target price of HK$8.60, corresponding to a price-earnings ratio of 12.2 times 2024 and a price-earnings ratio of 9.7 times 2025, with 18.0% upside compared to the current stock price.

risks

Oil prices fluctuated sharply, and prices and workload fell short of expectations.