The company's performance has improved steadily in recent years

The stability and sustainability of the company's performance stems from its unique business advantages, performance characteristics that are less related to oil prices, and strong cost control capabilities. Per capita income generation increased from 2.19 million in 2019 to 3.43 million in 2023, an increase of 56.5%; the increase in per capita profit generation was even more obvious, from 0.0808 million yuan in 2019 to 0.2144 million yuan in 2023, which nearly doubled 2.65 times in five years.

The trend of increasing storage and production of CNOOC is expected to be determined. The company is in the oil and gas development and production stage, and China's external dependence on oil and gas remains high. In 2023, China's external dependence on oil and gas was 74.6% and 41.98% respectively. Increased storage and production are expected to become an inevitable trend. As the main force in increasing domestic oil and gas production, CNOOC has achieved remarkable results in exploration and development in recent years. Its reserves have continued to reach new highs, and production has grown steadily. The life cycle of the oil and gas production stage business can reach 20-50 years, which is the core part of the company's business development. The company focuses on providing professional technical services at the oil and gas production stage. The business positioning is clear, covering various fields such as improving oil and gas field recovery, equipment manufacturing, operation and maintenance.

The company's performance effectively resists oil price disturbances, and the task of stabilizing production boosts long-term demand. With stable profitability and a business system throughout the entire industry chain, the company has effectively resisted external risks such as oil price fluctuations. Both gross margin and net interest rate have increased significantly in recent years. The company's ROE also performed well, and the center was systematically boosted, averaging 7.34% in 2019-2021 and 13.13% in 2023. In particular, its unique business model is deeply tied to CNOOC (the average share of related party sales in the top five customers in 2016-2023 is 65.2%), which ensures stable business volume and continued growth in profit levels. Domestic oil field development costs are rising, and the task of stabilizing production is arduous. The company has taken the lead in deploying a number of techniques to improve yield and successfully applied them to actual production. New and old oil and gas fields have brought continuous growth in demand for the company's manufacturing and operation and maintenance services, providing solid support for the long-term development of performance.

The company has excellent cost control capabilities, and technological innovation drives cost reduction and efficiency

With its excellent cost control capabilities, the company has achieved significant optimization of cost management by focusing on improving quality and efficiency and reducing “three fees” pressure. The sum of the three sales, management, and finance rate rates dropped from 5.62% in 2019 to 3.97% in 2023. The company's ROIC reached 11.8% in 2023, a significant increase compared to 2019 (7.21%). At the same time, technological innovation has become a key driving force for cost reduction and efficiency. It not only independently develops technology to improve oilfield production efficiency, but also innovates service models to reduce costs. The application of digital technology has also driven a leap forward in production efficiency and delivery speed, improving the company's overall operational efficiency.

Profit forecasting and valuation

We maintain our net profit forecast of 3.53/3.875/4.384 billion for 2024/2025/2026. Corresponding EPS was 0.35/0.38/0.43 yuan, PE 10.94/9.97/8.81 times, respectively, maintaining the “buy” rating.

Risk warning: risk of upstream oil and gas price fluctuations; increased risk of market competition; risk of oil and gas by-product demand falling short of expectations; risk of safety accidents and insufficient insurance; risk of domestic oil and gas storage growth falling short of expectations; risk of extreme weather affecting the company's normal operations