Main points of investment:
In 2018, the net profit of homing increased by 64% over the same period last year. In 2018, the company realized operating income of 4.781 billion yuan, + 213.99% over the same period last year; and realized net profit of 601 million yuan, + 63.91% over the same period last year. Among them, 4Q18 made a loss due to impairment of assets, with a net profit of-50.0879 million yuan in the fourth quarter.
The company's oil and gas reserves in the United States are growing steadily. The company has three oil fields of Hoople, Howard and Borden in Permian Basin of the United States. Among them, Hoople oilfield assets are conventional oilfields and waterflooding development, while Howard and Borden oilfields are shale oil and gas, which have large room for production growth and contribute to the company's main performance.
As of December 31, 2018, the company had proven reserves of 271 million barrels of oil equivalent (1p), an increase of 10.142 million barrels of oil equivalent from the same period last year.
Both volume and price rose, and the company's oil and gas business profits increased significantly in 2018. The average international oil price rose in 2018, with the annual average price of WTI rising $64.90 per barrel, up $14.03 per barrel (+ 28%) compared with the same period last year. As the Howard and Borden oilfields were officially included in the merger scope on August 1, 2017, the company's oil and gas production increased significantly in 2018, with oil production of 12.94 million barrels (about 1.77 million tons), + 62 percent year on year; natural gas production of 1.78 million barrels of oil equivalent (about 303 million cubic meters), + 64 percent year on year. In 2018, the company's oil and gas business achieved an after-tax profit of 1.959 billion yuan, + 432 yuan compared with the same period last year.
The asset impairment loss of 1.1 billion yuan is a drag on the performance in 2018. In 2018, the company made a total asset impairment loss of 1.096 billion yuan, of which the individual impairment of 100 million yuan mainly included: (1) 600 million yuan of equity investment in Hami Hesheng Mining Company; (2) 200 million yuan of trust beneficial right assignment due to Horgos Zhiyuan Venture Capital Group; (3) 170 million yuan of limited partnership share to Changsha Zelu Venture Capital Partnership (4) the loan principal and interest receivable from Beijing Xinjie Investment Center is 102 million yuan.
1Q19, the sharp fluctuation of the fair value of the hedging contract led to the company's loss. 1Q19, the company realized operating income of 1.266 billion yuan, + 30.97% year-on-year, and net profit of-163 million yuan,-291.30 yuan.
1Q19, the company achieved a gross profit of 606 million yuan, + 16.8% compared with the same period last year, a slight decrease of 2.7% from the previous month. The company's loss was mainly due to the fact that the average price of hedging contracts at the end of the first quarter was lower than the market price, resulting in a profit or loss of-630 million yuan in the fair value of 1Q19.
Us crude oil production continued to grow in 2019. U.S. crude oil production reached 1227.7 million barrels per day in the week ended April 26, 2019, an increase of 582,000 barrels per day from the end of 2018 and a record high. We expect the United States to release more than 1 million barrels per day of crude oil pipeline capacity in the second half of this year, and we expect U.S. crude oil production to grow further after the pipeline bottleneck is eased.
Profit forecast and investment rating. We estimate that the return net profit of the company from 2019 to 2021 is 770 million yuan, 1 billion yuan and 1.09 billion yuan respectively, the EPS is 0.11,0.15,0.16 yuan respectively, and the BPS is 2.22 yuan in 2019. With reference to the comparable company valuation, we give the company 1.2-1.5 times PB in 2019, corresponding to a reasonable value range of 2.66-3.33 yuan (corresponding to 24-30 times PE in 2019), maintaining a "better than the market" rating.
Risk tips: crude oil prices fluctuate sharply, the company's oil and gas production growth is not as expected.