报告名称：Hilong Holdings Ltd.(01623.HK)2015 EPS 29% below consensus; key 2016 risk from o
报告类型：港股研究
报告日期：2016-03-20
研究机构：摩根大通银行
股票名称：HILONG
股票代码：01623
页数：6
简介：Hilong reported 2015 earnings, posting a 4% revenue decline and a 60% contraction in net profits. 2015 EPS is 29% below Bloomberg consensusand, as commented recently, we see key challenges for the company to sustain its offshore business growth, while its traditional drill pipe segment islikely to see extended declines in 2016. Maintain UW.
2015: Legacy offshore orders supported limited revenue decline; margin collapse on costs. Hilong’s smaller revenue decline last year (-4%versus a >20% decline at major industry peers) was mainly supported by its legacy offshore orders received at end-2014, while its traditional drillpipe business (c. 50% revenue contribution in 2014) fell more than 50% in 2015 as key clients trimmed capex. On segment margins, oilfieldequipment manufacturing & services (mainly drill pipes) saw OP margin contract to 22% in 2015 (25% in 2014), line pipe technology to 10% (vs19%) and oilfield services stable at c. 24%, while offshore engineering OP margin turned positive at 14% (vs negative in 2014). Fixed costs andrelatively thinner margins at new offshore business contributed to the 60% EPS decline last year.
2016: Key risk from loss of offshore driver, continued slowdown in other segments. As argued in our recent report, China Oil Service –Roadmap to more and less distress (see note), we see major headwinds from the challenges for Hilong to sustain its offshore business growth(24% revenue contribution in 2015) after the previous projects tendered by CNOOC completed in 3Q15, because: 1) CNOOC continues to reducecapex in offshore China and is likely to prioritize in-house engineering arm COOEC (600583.CH, N) in order allocation; and 2) overseas marketsare still challenging as global producers are set to slash spending further in 2016 (see our global E&P survey here). Furthermore, the need tomobilize equipment to an overseas market may also delay execution and increase costs. This offshore risk was also confirmed in Hilong’s annualreport, where no mention of any imminent project renewals indicates a lack of confidence, in our view. A slowdown in offshore business may alsonegatively affect its other segments, such as pipeline coating, which benefited from synergy with offshore business in 2015.
Stable growth in oilfield services and pipeline business difficult to reverse trend. Hilong management guided to a ‘stable’ outlook for itsoilfield services (mainly onshore drilling) and pipeline coating/inspection. While we acknowledge the argument on a relative basis (oilfieldservices by some committed contracts and pipeline business supported by China’s increased focus on pipeline safety), we believe there will beincreased downside risks to pricing although volume is less likely to see a similar decline as for offshore and drill-pipe business. Hence, we seebest case of zero growth for its drilling and pipeline business, with further downside risks easily justified by the weak market. Hilong’s drillingand pipeline segments contributed 49% of its total revenue in2015.

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