KGI: China Oilfield Services Limited (2883 HK): A lagging oil & gas E&P counter
alanyeo
BUY Entry – 7.1 Target – 8.1 Stop Loss – 6.6
China Oilfield Services Limited is a comprehensive oilfield service provider. The Company mainly operates through four business segments. The Drilling Services segment is mainly engaged in the provision of oilfield drilling services. The Oil Field Technical Services segment is mainly engaged in the provision of oilfield technical services, including the logging, drilling fluids and directional drilling services. The Geophysical and Engineering Exploration Services segment is mainly engaged in the provision of seismic prospecting and engineering exploration services. The Marine Support Services segment is engaged in the transportation of supplies, including the delivery of crude oil, as well as refined oil and gas products. The Company mainly operates its businesses in domestic and overseas markets.
Oil prices to reclaim the 52-week highs soon. Both Brent and WTI have been trading at above US$80/bbl for most of the trading days YTD. Even though omicron infection cases are still rising, and some lockdowns in several countries remain, the demand for oil have not tapered substantially. The recent decision from OPEC+ to hike output by 400,000 bbls/d failed to bring prices down as the supply-demand gap is narrower than expected. More importantly, the underinvestment in exploration and production will leave limited room for further output hike. Accordingly, the market is projecting oil prices to reach US$100/bbl this year.
We may not see inflation subside in the near term. The US, Europe, and China released their inflation data recently, showing that inflation pressure is still high. Oil and gas is a good hedging against inflation or stagflation amidst the rate hike cycle. The bouyant oil price will gradually pull some investments back in the sector given clean energy investment is overheated at the moment.
The updated market consensus of the EPS growth in FY22/23 is 38.50%/17.6% YoY respectively, which translates to 8.9x/7.5x forward PE. Current PER is 14.6x. Bloomberg consensus average 12-month target price is HK$9.49.
