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雷达卡
Current Price Levels Attractive
The recent equity-market sell-off offers a good entry level for the Chinese oil services
and oil equipment sector. We see growth accelerating and fundamentals remaining
strong. Oil has averaged above US$100/bbl for 2008 despite the traditional first-half
downtrend, and we expect the uptrend to continue through 3Q08. Due to its
ever-increasing thirst for oil and decreasing reserve-replacement ratios, China has
pumped in massive amounts of capital to improve its exploration and production
(E&P) results. Given these two drivers fueling demand for oil services and
equipment, we believe many investors have neglected the sector entirely. In fact,
Hong Kong-listed oil-services companies have fallen 30% ytd on average vs. the
HSI’s 11%. We see this correction as overdone and expect the situation to reverse
itself in coming weeks.
Revenue growth for the sector has been encouraging. Our cross-section of stocks
posted average revenue growth of 61% for FY07. This reflects the motivation within
the industry to extract as much oil as possible, not only for economic profit but also
as in effort to reduce China’s dependence on foreign oil. Earnings have also shown
great improvement. On average, EPS for Chinese oil-services companies rose 40% in
FY07. We expect at least a 30% CAGR from 2007 to 2010.
Risks
The sector is not without its challenges. China’s inflation and the dramatic cost
increases in raw materials have put pressure on many of these companies’ bottom
lines. The market for lower-end drilling equipment is quickly being saturated by
non-specialist companies, such as integrated steelmakers, looking to expand into any
viable market available. RMB appreciation is also curbing international sales and
reducing net margins from overseas operations.
Positive Outlook
We remain optimistic nonetheless, and believe fundamentals will still be supported
by 1) Continued high oil prices driving capex for E&P, 2) Limited spare capacity
throughout the oil-services industry, 3) Increased demand for high-quality services
and equipment to increase production, and 4) The still significant discounts of
Chinese companies vs. their international peers.
Contents
Overview: Recent sell-off offers a good entry level for the Chinese oil services and oil equipment sector 3
Fundamentals provide strong support for oil-services industry 5
Chinese oil capex leads to oil-services boom 7
Chinese Oilfield Service Limted (COSL) – (2883.HK; Buy) 8
Anton Oilfield Services – (3337.HK; Buy) 11
Dalian Port – (2880.HK; Buy) 14
Jutal Offshore Oil Services – (3303.HK; Buy) 18
Shandong Molong – (568.HK; Neutral) 21
Anhui Tianda Oil Pipe – (839.HK; Buy) 24
China Automation Group – (569.HK; Buy) 27
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