- Buy Entry – 9.5 Target – 10.9 Stop Loss – 8.8
- 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 to hit a new high this year. With the ease of COVID lockdown measures in China’s major cities, the domestic economic and production activities gradually normalise. Accordingly, the demand for petroleum in China will recover. Previously, Saudi Arabia raised the July official selling price (OSP) for its flagship Arab light crude to Asia by $2.10 from June to a $6.50 premium, the highest since May, when prices hit all-time highs due to worries of disruption in supplies from Russia. The price increase followed a decision last week by the OPEC+ to boost output for July and August by 648,000 bbls/day. Goldman Sachs economists have predicted oil prices will surge to $140 a barrel this summer, with a drop in Russian production and a gradual recovery in Chinese demand adding to the pressure on already low supplies.
- 1Q22 results review. Gross revenue grew by 15.2% YoY to RMB6.8bn. Gross profit grew by 10.8% YoY to RMB733.7mn. Net profit attributable to shareholders of the company jumped by 67.7% YoY RMB303.8mn. Net profit excluding non-recurring gain and loss attributable to shareholders of the company jumped by 76.5% YoY to RMB266.7mn.
Key operations highlights
| Drilling Services | 1Q22 | 1Q21 | YoY Change (%) |
| Operating days | 3,922 | 3,291 | 19.2 |
| Jack-up Drilling Rigs | 3,239 | 2,568 | 26.1 |
| Semi-submersible Drilling Rigs | 683 | 723 | -5.5 |
| Utilisation rate (Available Day) | 84.2% | 69.8% | +14.4 ppts |
| Jack-up Drilling Rigs | 89.4% | 70.2% | +19.2 ppts |
| Semi-submersible Drilling Rigs | 66.1% | 68.3% | -2.2 ppts |
| Utilization Rate (Calendar Day) | 75.9% | 65.8% | 10.1 ppts |
| Jack-up Drilling Rigs | 83.0% | 67.0% | +16.0 ppts |
| Semi-submersible Drilling Rigs | 54.2% | 61.8% | -7.6 ppts |
- Mean reversion of capex. During 2020/21, the global integrated oil companies trimmed the capex of the exploration and production substantially. According to Bloomberg, the capex of oilfield services and equipment is expected to jump by 40% YoY to US$5.1bn in 2022. The performance of the exploration sector still lags behind the production sector currently, but it will catch up eventually.
- Updated market consensus of the EPS growth in FY22/23 is 852.7%/22.1% YoY respectively, which translates to 13.4x/11.0x forward PE. The current PER is 92.3x. Bloomberg consensus average 12-month target price is HK$10.98.
(Source: Bloomberg)
