CHINA OILFIELD SERVICES(601808)：2024 EARNINGS MISSED;EXPECT RAPID GROWTH IN 2025

COSL’s net profit grew 4% YoY to RMB3,137m in 2024, 8% below our forecast. The discrepancy mainly came from the lower-than-expected operating days of its rigs and higher-than-expected costs. We expect its earnings growth to accelerate to 33% YoY in 2025 on increases in operating days and higher day rates of its rigs and continued growth of its well services segment. We cut our 2025/26 earnings forecasts by 14%/8% and reiterate our BUY call on its H shares with target price reduced to HK$9.47.

    Key Factors for Rating

    The operating days of its semi-subs was 8% below our forecast in 2024 owing to the bigger-than-expected disruption from typhoon in 4Q24. In addition, the company also booked renovation cost for semi-subs before they head for new contracts overseas. Moreover, the company still saw significant increase in sub- contracting costs and other opex. All these explain the discrepancy.

    In 2024, COSL posted 9% YoY growth in turnover, with all segments posting decent growth. However, increases in costs and disruption of operations made drilling segment and marine support segment barely profitable and resulted in lower margin for well services segment in 2H24.

    Looking ahead, we expect its earnings to surge 33% YoY in 2025. We expect the operating days of its jack-ups and semi-subs to grow 4% YoY and 15% YoY respectively as the previously suspended jack-ups works on new jobs and we assume no more significant disruption from typhoons. We also expect the average day rate of its semi-subs to surge 40% YoY as three rigs will start jobs in high rate areas including two in North Sea and one in Brazil.

    We cut our earnings forecasts mainly to reflect higher-than-expected costs. We reiterate our BUY call on its rapid growth ahead and undemanding valuations.

    Key Risks for Rating

    Slower-than-expected growth.

    Slower-than-expected progress in developing overseas markets.

    Valuation

    We lower our target price for its H shares from HK$10.19 to HK$9.47 to reflect the cuts in our earnings forecasts. We lower our target valuation from 0.95x 2024E P/B to 0.9x 2025E P/E to reflect the decrease in our 2025E ROE from 10.8% to 9.2%.

    We raise our target price for its A shares from RMB20.14 to RMB20.60. We still set our target price based on its average 3-month A-H premium which has widened since late January 2025.