Core viewpoints
Oil and gas upstream investment has changed from decline to increase, oil and gas reform to increase market opportunities drilling business benefits will bear the brunt. Three barrels of oil reported significant growth in semi-annual results, oil and gas upstream investment bottomed out and rebounded, and capital expenditure exceeded 15% in the first half of the year. Petrochina, the company's largest customer, reported a turnround in its upstream exploration and development business on a half-yearly basis, with a net profit increase of 9 billion. Trough recovery superimposed oil and gas reform gives room for the development of private enterprises. State-owned enterprises have not increased drilling rigs for many years, and small-scale private enterprises have disappeared in nearly three years of depression, superimposed oil and gas reform has gradually opened up upstream exploration business, drilling is an essential important link, and the company is expected to get the maximum benefits in the recovery phase. Xinjiang, where the company is located, is also expected to become an important pilot area for oil and gas reform.
The Ukrainian drilling project won the bid, and its net profit increased by 30% in the first three quarters. Bacon Energy is the first A-share listed company in China with drilling as its main business, with a total of 32 drilling rigs. the main service markets are in Xinjiang, Sichuan, Hubei, Iran and Ukraine. In July 2017, the company won the bid for the 3-year drilling engineering service project of Ukraine Natural Gas drilling and production Company. Two "70" and two "50" rigs won bids in four blocks totaling 400 million yuan, with an average annual contract value of about 30% of 2016 revenue. The company's half-year performance exceeded expectations, with revenue of 204 million yuan, an increase of 29% over the same period last year. The net profit attributed to shareholders of the listed company was 18 million yuan, an increase of 37% over the same period last year, and the company's semi-annual report estimated that the net profit in the first three quarters of the year would increase by 30% and 50%.
For the first time, coverage will be rated as "overweight".
The company is the first listed drilling company, focusing on drilling business. The winning Ukrainian drilling contract guarantees an increase in workload in the next three years, and benefits from the recovery of the industry and investment. It is estimated that the operating income in 2017-2019 will be 5.44,6.98 and 882 million yuan respectively, and the EPS will be 0.69,0.83,0.96 yuan per share respectively, and the corresponding PE will be 39, 32 and 28 times respectively.
Risk hints: the implementation rate of OPEC production limit agreement is too low, the situation in Ukraine has undergone a major change, the increase of shale oil and gas production in the United States is much higher than expected, the international demand for oil products has dropped sharply, and the oil and gas reform plan has not been substantially implemented.