Key points of investment

Introduction: The company's workload in the first half of the year was full. Overall performance remained at last year's high level. The amount of new orders signed at home and abroad declined, but the increase in revenue from CNOOC and the progress of orders from the Middle East and Southeast Asia prove that the company's future revenue continuity in domestic and foreign markets is still strong.

Incident: The company announced that the first half of 2024 and 24Q2 achieved revenue of 13.429 billion yuan and 7.758 billion yuan respectively, up -7.01% and -3.57% year on year, and realized net profit attributable to mother of 1.197 and 0.722 billion yuan, up 21.69% and 34.86% year on year, achieving net profit without deducting non-mother of 0.839 and 0.439 billion yuan, up 7.43% and -3.86% year on year.

One-off projects in the first half of the year affected net profit, and the full workload supported short-term performance. The company's 24Q1 R&D expense classification was adjusted. Only 0.014 billion yuan was confirmed for the quarter, and the 24Q2 company confirmed 0.233 billion yuan in consumption tax rebates. Excluding two types of one-time factors, the company's overall performance in the first half of the year maintained a high level of the same period last year. In terms of workload, the company's steel processing volume in the first half of the year was 0.2713 million tons, up 16% year on year, and invested 0.0114 million in offshore operations such as installation, down 12% year on year. However, the number of offshore installations of conduit frames and blocks increased dramatically, and the number of large-scale structure installations increased 110% year on year. The operating rate of its own ships remained at a high level of 90%, and the workload was full, and short-term performance was supported.

CNOOC continues to support the domestic oil and gas business. Although the non-offshore business is declining, there are still prospects in the medium term. In the first half of '24, the company's sales revenue to CNOOC reached 9.179 billion yuan, up 7.3% year-on-year, accounting for a 9% increase in revenue over the same period last year. CNOOC's capital expenditure budget continued to rise, and it is still planned to achieve an average annual net production increase of 6%-7% in 24-26. It is expected that CNOOC's capital expenditure will remain high in the next few years, supporting the company's domestic offshore business; the non-offshore business aspect was affected by the completion of some domestic and overseas LNG projects in the first half of '23, revenue from non-offshore projects. Billions of yuan, down 57% year on year. Based on the domestic LNG receiving station project plan during the “15th Five-Year Plan” period, we believe that the company still has the potential to accept subsequent orders. In the first half of the year, the company signed a new contract of 7.539 billion yuan for its domestic oil and gas business, a year-on-year decline of 31%. Considering the sustainability of CNOOC's capital expenditure and the mid-term plan for domestic LNG projects, we believe that the company's domestic business volume is sustainable.

The Middle East market continues to expand, and Southeast Asia enters the deep-sea market. In the first half of '24, the company signed new contracts for overseas business of 4.975 billion yuan respectively, down 28% from the high of the same period last year. We believe that the company's overseas market commitments will continue to be at a high level in the medium term. The company has the ability to continue to develop contracts in the Middle East market, and has general contracting capabilities in Saudi Arabia, Qatar and other countries. Since this year, the company has successfully delivered the first and second batch of conduit frames for the Saudi Aramco Margan project and the CRPO122 project, successfully started construction of the Qatar ISND5-2 project, and received a new Saudi Aramco CRPO125/126 conduit rack transportation and installation project. The Middle East region has already accepted orders and potential orders that will provide an important guarantee for the company's overseas business. In addition to the Middle East, the company also has the ability to develop new projects in Southeast Asia and other places. This year, the company signed a new Pohang Steel Phase IV development turnkey project in Myanmar. This is the first time that a Chinese company has won a kilometer-scale international deep-water oil and gas engineering turnkey project.

Profit forecast and valuation: The company's net profit for 24-26 is estimated to be 1.959, 2.339, and 2.665 billion yuan, corresponding to EPS 0.44, 0.53, 0.60 yuan/share, corresponding to PE 12.8, 10.7, and 9.4 times PE, maintaining a “buy” rating.

Risk warning: risk of oil price fluctuations, risk of fluctuations in LNG business volume, risk of asset impairment.