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Offshore Oil Engineering:Oil price recovery to help the company recover,but recovery may be slower than oilfield services

发布时间:2016-06-15    研究机构:瑞银证券

Industry shows signs of recovery, but it will likely lag oilfield services.

We expect the company's 2016 domestic revenue and gross margin to dropsignificantly, though this appears mostly priced in. With crude oil prices rising 80% inthe past two quarters, there is hope of an industry recovery, but because the business isat the trailing end of oilfield development, we believe the pace of recovery may beslower than for peers. We expect CNOOC to increase capital spending if the averageprice of crude remains stable at above US$50/bbl in 2017, but a strong recovery maynot occur until 2018.

Fall in domestic revenue offset by global projects; GM may beat previous cycle.

Though low oil prices are a disadvantage, the company's overseas revenue growth haspartially offset the decline in domestic business, unlike during the same period in theprevious cycle. Moreover, the company's construction operations offer stellarprice/performance ratio and quality. Therefore, international orders are likely to increasein 2016. Meanwhile, due to improved management efficiency and the relatively highgross profits of international orders, we do not expect the company to make losses ifthe asset turnover ratio falls in 2016, unlike during the previous cycle.

Decreased revenue led to lower gross margin; we lower our EPS estimates.

We lower our 2016-18E EPS (excl. one-offs) to Rmb0.31/0.39/0.57, or by49%/37%/21%. We lower the company's domestic revenue due to CNOOC's strongerthan-expected control of capex in Q1. We lower our gross margin forecast in view ofthe fall in asset turnover ratio and increased competitive pressure. We estimate one-offgains could contribute Rmb0.25 to 2016 EPS (not incorporated in our estimates).

Valuation: Maintain Neutral rating.

Given that the company's earnings are likely to decline in 2016, we lower our pricetarget to Rmb7.50, based on 19.2x 2017E PE (previously 15.9x 2016E PE). We believethe market has mostly priced in expectations of disappointing 2016 earnings due to theindustry downturn. We maintain our Neutral rating because the recovery of thecompany's ROE could lag oil prices by 1-2 years. Because we now use 2017E EPS andexpect a moderate earnings recovery in 2017, our target PE is close to the five-yearaverage forward PE of 21x but higher than the average forward PE of 15x in 2013-15,when fundamentals were strong. Our PT implies 1.3x 2016E P/B, similar to global peers.

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