Asia Pacific Equity Research 19 March 2016
Initiation Underweight Sinopec Oilfield Service -H 1033.HK, 1033 HK More capex cuts from Sinopec, low efficiency; initiate Price: HK$1.77 with Underweight Price Target: HK$1.30
We initiate coverage of Sinopec Oilfield with an Underweight rating China and Dec-16 PT of HK$1.30, implying 26% potential downside from Oil Services & Equipment current levels. Key risks include further capex reductions at Sinopec and Ying Wang AC low efficiency. (852) 2800 8536 [email protected] Extended capex reductions at Sinopec. We expect Sinopec to trim Bloomberg JPMA WYING
Sinopec Oilfield Service - H (Reuters: 1033.HK, Bloomberg: 1033 HK) Rmb in mn, year-end Dec FY13A FY14A FY15E FY16E FY17E Company Data Revenue (Rmb mn) 88,707 77,991 62,833 59,431 65,982 Shares O/S (mn) 15,224 Net Profit (Rmb mn) 1,465 2,417 (655) (406) (324) Market Cap (Rmb mn) 22,507 EPS (Rmb) 0.10 0.16 (0.04) (0.02) (0.02) Market Cap ($ mn) 3,475 DPS (Rmb) - - - - - Price (HK$) 1.77 Revenue growth (%) 2.8% (12.1%) (19.4%) (5.4%) 11.0% Date Of Price 18 Mar 16 EPS growth (%) 26.8% 65.0% (125.3%) (39.1%) (20.2%) Free Float(%) - ROCE 4.7% 7.8% (0.4%) (0.0%) 0.3% 3M - Avg daily vol (mn) 7.44 ROE 6.5% 11.4% (3.3%) (2.0%) (1.6%) 3M - Avg daily val (HK$ mn) 13.11 P/E (x) 15.4 9.3 NM NM NM 3M - Avg daily val ($ mn) 1.7 P/BV (x) - - - - - HSI 2,0503.81 EV/EBITDA (x) 9.5 10.9 19.8 18.2 16.5 Exchange Rate 7.76 Dividend Yield - - - - - Price Target End Date 31-Dec-16 Source: Company data, Bloomberg, J.P. Morgan estimates.
See page 13 for analyst certification and important disclosures, including non-US analyst disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
www.jpmorganmarkets.com Ying Wang Asia Pacific Equity Research (852) 2800 8536 19 March 2016 [email protected]
Key catalysts for the stock price: Upside risks to our view: Downside risks to our view: 1) Client capex cut announcement Smaller-than-expected capex cut at Sinopec, 1) Extended capex reduction from Sinopec 2) Consensus downgrades non-drilling business growth (pipeline) and 2) Low efficiency, thin margins rapid increase in global oil prices
Key financial metrics FY14 FY15E FY16E FY17E Valuation and price target basis Revenues (LC mn) 77,991 62,833 59,431 65,982 Our Dec-16 PT of HK$1.30 is derived from blended multiples, including P/B, EV/EBITDA and EV/sales. Revenue growth (%) (12%) (19%) (5%) 11% EBITDA (LC mn) 8,111 4,568 5,038 5,485 EBITDA margin (%) 10% 7% 8% 8% Tax rate (%) 27% 0% 0% 0% Net profit (LC mn) 2,417 (655) (406) (324) EPS (LC) 0.16 (0.04) (0.02) (0.02) EPS growth (%) 65% NM NM NM Price Target Breakdown DPS (LC) - - - - Multiple P/B EV/EBITDA EV/sales Operating cash flow (LC mn) 4,501 (148) 3,265 5,580 (x) 0.7 7.0 1.8 Free cash flow (LC mn) 2,572 (3,772) (392) 1,951 Deriv ed EV (RMB mn) 28,035 30,400 108,780 Weighted EV (RMB mn) 32,308 Net margin (%) 3% (1%) (1%) (0%) Net debt (RMB mn) 13,896 Sales/assets (X) 1.0 0.8 0.7 0.8 Equity Value (RMB mn) 18,412 Debt/equity (%) 67% 74% 79% 83% Price target (HK$) 1.3 Net debt/equity (%) 61% 65% 71% 66% ROE (%) 11% (3%) (2%) (2%) Source: Company and J.P. Morgan estimates. Source: Bloomberg, Company and J.P. Morgan estimates.
Sensitivity analysis EBITDA EPS JPMe vs. consensus, change in estimates Sensitivity to FY16E FY16E EPS FY15E FY16E 1% chg in EBITDA margins 2% 3% JPMe old 0.01 0.02 1% chg in tax rate 0% 2% JPMe new (0.04) (0.02) Source: J.P. Morgan estimates. % chg NM NM Consensus (0.04) 0.02 Source: Bloomberg, J.P. Morgan estimates. China Oil and Gas coverage comparative metrics Mkt Cap P/E EV/EBITDA P/BV YTD $bn FY15 FY16 FY15 FY16 FY15 FY16 Stock perf. PetroChina (OW) 209.9 17.8 10.5 4.6 3.7 0.7 0.6 6% CNOOC (N) 84.2 11.7 8.7 2.3 1.9 0.8 0.8 14% Sinopec Corp - H (OW) 50.0 18.0 8.7 4.8 3.5 0.8 0.8 4% China Oilfield Services (UW) 7.6 24.4 21.4 12.0 11.9 0.6 0.6 (2%) Sinopec Oilfield Serivce (UW) 11.5 739.7 105.7 20.6 22.1 0.9 0.9 (11%) Offshore Oil Engineering (N) 4.8 10.8 12.0 6.2 7.2 1.4 1.3 (18%) Hilong Holdings (UW) 0.2 5.4 5.0 5.6 5.5 0.4 0.4 (21%) Anton Oilfield Services (UW) 0.2 NA 40.5 10.6 7.1 0.7 0.7 8% SPT Energy Group Inc. (UW) 0.1 NA NA NA 48.7 0.5 0.6 (13%) Honghua Group (UW) 0.2 NA NA 10.4 8.7 0.3 0.3 (11%) Source: Bloomberg, Company and J.P. Morgan estimates. Prices are as of 2016-03-18
2 Ying Wang Asia Pacific Equity Research (852) 2800 8536 19 March 2016 [email protected]
Figure 1: SSC’s revenue breakdown (1H15) Investment Thesis, Valuation and Risks Downh Others Geoph ole 3% ysics Sinopec Oilfield Service -H (Underweight; Price Target: HK$1.30) 9% 9% Investment Thesis Engine ering SSC is the in-house oilfield service arm of China’s second-largest oil and gas 22% producer, Sinopec Group, the parent company of Sinopec (386.HK), which is also Drilling SSC’s largest shareholder and a customer, with a 70% revenue contribution. SSC is 54% China’s second-largest onshore oilfield service provider, following CNPC's in-house service subsidiary. SSC’s main businesses include geophysics, drilling engineering, Loggin logging & mud logging, special downhole operations and engineering construction. g 3% Drilling and engineering construction (mainly oil & gas pipelines) constitute c.50%
Source: Company data. and 20% of total revenue, respectively. SSC also provides drilling-related services in Saudi Arabia, Kuwait and Ecuador, among others, with about 30% of revenues from outside China. The company had a backdoor listing in Sep-14 using the 1033.HK shell, which previously held Sinopec’s Yizheng petrochemical assets. Our negative view on SSC-H is based on:
Risk from SSC’s heavy reliance on Sinopec in the current environment, as Sinopec’s all-in production cost, at c.20% above peers, may prompt larger-than- expected capex reductions, given low oil prices, and this would pressure both margin and volume. Global E&P capex reductions add to the risk. Weak demand triggers deeper oil production declines. All Chinese NOCs intend deeper crude oil production declines and even slower natural gas output growth in 2016 as weaker demand extends. Valuation Our Dec-16 PT of HK$1.30 is derived from blended multiples, including P/B, EV/EBITDA and EV/sales.
Multiple P/B 0.7x EV/EBITDA 7.0x EV/sales 1.8x Derived EV (Rmb M) 28,035 30,400 108,780 Weighted EV (Rmb M) 32,308 Net debt (Rmb M) 13,896 Equity Value (Rmb M) 18,412 Price target (HK$) 1.3 Source: J.P. Morgan estimates.
Risks to Rating and Price Target Upside risks include smaller-than-expected capex cuts at Sinopec, non-drilling business growth (pipeline) and a rapid increase in global oil prices.
Near-term catalysts Near term catalysts include potential earnings disappointments and Chinese NOCs’ 2016 capex announcements around March.
3 Ying Wang Asia Pacific Equity Research (852) 2800 8536 19 March 2016 [email protected]
SWOT analysis
Figure 2: Sinopec Oilfield analysis Strengths Weaknesses Sinopec Oilfield is the in-house oilfield service provider, and its market is We expect the earnings downtrend to continue, as major customers are supported by Sinopec’s upstream spending. It is also China’s second-largest increasing pressure on margins and equipment utilization, both internationally onshore OFS player, after CNPC’s Oilfield Service Co. So, scale and the and in the domestic market. relationship with Sinopec Group could give it some protection during the SSC has shown weaker margins and efficiency than peers. Its net margin downcycle. averaged 2% over 2011-14 vs. 22% at COSL. The company’s guided margin SSC leads the research and E&P work for China’s largest shale gas project in expansion to 4% in 2015 when it was listed at end-2014, but actual margin Fuling, Chongqing, and the experience will like benefit market share expansion if delivered might be <0.1%, based on the company’s latest estimate. China plans to drill more shale gas wells in the future. Excessive revenue concentration on a single client. SSC derives c.70% of revenue from Sinopec Group. Although this offers market share protection in the Chinese offshore market, it also implies risks vs. global peers with diversified revenue streams. Sinopec has been historically weak in upstream and more reliant on downstream refining. Sinopec’s upstream development has been higher than peers, so we expect Sinopec to have deeper upstream capex cuts under a low oil price environment to relieve cash flow constraints. Opportunities Threats Sinopec is still pushing ahead with the Fuling project, as it reiterated plans to Lower oil prices would make new projects challenging and indicate fewer have annual capacity of 10bcm pa by 2017 following the completion of 5bcm pa opportunities in that market. by end-2015. The industry may go through a multiyear slowdown due to the excess oil Drilling activities in the Middle East are relatively more active than in other supply globally and China’s soft economic expansion, which could lead to regions, and SSC’s increased exposure to that market, including Saudi Arabia, weaker oil demand growth. may offer some buffer to the domestic slowdown. China’s domestic onshore OFS market is more competitive than offshore, SSC may be able to gain market share if we see wider industry consolidation, as with competition from CNPC Oilfield, Chinese independent and overseas independent service players may be forced to close due to cash flow constraints service providers. if oil prices remain low. As an SOE, SSC may also have government support to Sinopec has the highest per-barrel all-in cost among Chinese peers, and avoid bankruptcy under a worst-case scenario, given the importance of its lower oil prices may put more pressure on Sinopec’s drilling plans. business to China’s long-term energy security.
Source: J.P. Morgan
Financial analysis
Income statement Revenue decline. We expect SSC’s revenue to decline 19%/0.5% in 2015/16 due to clients’ capex reductions and stronger industry competition.
Margin contraction. SSC has historically had very thin margins due to its low efficiency. Net margin was 2% for 2011-14, and delivery is set to disappoint, although management has guided for margin expansion of c.4% in 2015. The company issued a profit warning in Jan-16, estimating FY15 net profit of c.Rmb23mn, although the 9M15 reported net loss was Rmb1.9bn.We find it hard to justify Rmb2bn+ net profit in 4Q15 and forecast a net loss in FY15/16.
Balance sheet Asset returns. We expect SSC’s ROA to turn negative from 2015 due to deteriorating earnings vs. a three-year range of 1-3%. ROE may fall to -3%/-2% in 2015/16 vs. a three-year range of 5-11%.
4 Ying Wang Asia Pacific Equity Research (852) 2800 8536 19 March 2016 [email protected]
Credit analysis. We expect SSC’s net gearing to reach 65%/72% in 2015/16 vs. a three-year average of 60%. Net debt/EBITDA may rise to 3.6/x/3.3x for 2015/16 vs. a three-year average of 2.6x. Interest cover will be negative 1.3x/1x for 2015/16 vs. a three-year average of 2.3x.
Cash flow FCF. We expect negative FCF for SSC in 2015/16 due to deteriorating earnings and still-high capex requirements following its post-IPO investment plans.
Dividend. We do not forecast any dividend payouts for 2015/16 due to the losses.
Table 1: Earnings preview Rmb in millions 2H14 1H15 2H15E h/h change y/y change Revenue 43,806 23,121 39,711 72% -9% Geophysics 2,316 2,146 2,161 1% -7% Drilling Engineering 21,137 12,482 18,834 51% -11% Logging and Mud Logging 2,629 770 2,363 207% -10% Special Down-hole Operations 5,250 2,124 4,642 119% -12% Engineering Construction 11,778 5,016 10,884 117% -8% Others 696 584 828 42% 19% COGs (40,353) (22,434) (37,361) 67% -7% Operating income 1,319 (1,217) 262 NM -80% NP attributable to shareholders 1,124 (1,248) 593 NM -47% Source: Company data, J.P. Morgan estimates.
Negative #1: Sinopec’s higher upstream costs may drive more capex cuts
SSC’s largest customer Sinopec (c. 70% revenue exposure) is historically a refining/petrochemical-biased company. When China split its previous Ministry of Petroleum and Petrochemical into the current three oil majors in early 1980s, the government assigned the country’s top-quality refineries to Sinopec, while giving the best onshore upstream oil & gas block to PetroChina and most offshore acreage to CNOOC. Therefore Sinopec’s upstream blocks have been weaker in quality. That is reflected in Sinopec’s higher upstream production costs, in our view.
We believe the higher costs are likely to prompt deeper upstream capex reductions because Sinopec’s earnings will be more reliant on its dominant refining/chemicals, and it has cash flow constraints under the current low oil price environment.
5 Ying Wang Asia Pacific Equity Research (852) 2800 8536 19 March 2016 [email protected]
Figure 3: Sinopec’s all-in upstream production cost is c.20% higher than peers’ 70 60 50 40 30 20 10 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 CNOOC Sinopec PetroChina
Source: Company data, J.P. Morgan.
Negative #2: Weaker demand likely to see bigger production declines
Industry agencies are forecasting weaker-than-expected oil demand in China this year, and China’s former energy chief is also forecasting a 5% decline in oil production, the deepest since at least 1968. This is a big negative for Chinese domestic OFS players, as it indicates a bottom has yet to be hit.
Table 2: CNPC forecasts slower growth in oil products demand in 2016 Tons in millions 2014 2015 2016 Crude oil 517 546 572 YoY % 5.8% 5.6% 4.7% Gasoline 105 116 125 YoY % 12.5% 10.1% 7.4% Diesel 173 174 175 YoY % 1.5% 0.8% 0.4% Kerosene 24 28 31 YoY % 4.6% 17.2% 12.2% Source: CNPC.
Figure 4: China’s top energy industry advisor forecasts a 5% decline in oil production in 2016, the lowest in history 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E China's crude oil production
Source: People’s Daily, CEIC, J.P. Morgan estimates.
6 Ying Wang Asia Pacific Equity Research (852) 2800 8536 19 March 2016 [email protected]
Negative #3: Vulnerable margins
SSC’s historical net margin was 2% on average over 2011-2014 vs. c.20% at offshore peer COSL (2883.HK, UW). We attribute this to the company’s low efficiency, associated with a lack of competition within the Sinopec Group. We expect negative margins as the market deteriorates, as costs are unlikely to see a drastic decline.
Figure 5: SSC’s net margin could easily turn negative due to its higher costs 8.0%
6.0% 4.0%
2.0% 0.0%
-2.0% -4.0%
-6.0% -8.0%
-10.0% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 SSC net margin
Source: People’s Daily, CEIC, J.P. Morgan estimates.
7 Ying Wang Asia Pacific Equity Research (852) 2800 8536 19 March 2016 [email protected]
Revenue exposure
Figure 6: More than 70% of SSC’s revenue is from the drilling and engineering construction segments
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0% 2011 2012 2013 2014 2015E 2016E 2017E 2018E
Geophysics Drilling Engineering Logging and Mud Logging Special Down-hole Operations Engineering Construction Others
Source: Company data, J.P. Morgan estimates.
Figure 7: SSC derived 73% of revenue from domestic China in 1H15
Other countries 27%
PRC 73%
Source: Company data.
8 Ying Wang Asia Pacific Equity Research (852) 2800 8536 19 March 2016 [email protected]
Shareholder structure
Figure 8: Sinopec (386.HK) holds 65% of SSC as of end-1H15 Nanjing Ruisen Investment Beijing Harvest Yuanhe Management Investment Center 1% 2% Others 10% CITIC Limited 7%
HKSCC China Petroleum & 15% Chemical Corp. (Sinopec) 65%
Source: Company data.
9 Ying Wang Asia Pacific Equity Research (852) 2800 8536 19 March 2016 [email protected]
Management profiles
Table 3: Management profiles Name Age Proposed position Background JIAO Fangzheng 52 Non-Executive Director Professor-level senior engineer with a Ph.D. Appointed Director of SOSC in August 2012 Previously VP/Chief Geologist of Sinopec Zhongyuan Oilfield. Deputy Director General of Sinopec E&P Department VP of Sinopec. Deputy General Manager of Sinopec Group YUAN 59 Executive Director Professor-level senior engineer with a Ph.D. Zhengwen Appointed Vice Chairman of SOSC in June 2012 Previously Manager of Sinopec Yunnan-Guizhou-Guangxi Oilfield. Representative of Sinopec Henan Oilfield. Director of Sinopec Oilfield Operations Department. Director of Sinopec Petroleum Engineering Management Department ZHU Ping 51 Executive Director Professor-level senior engineer with a Ph.D. Appointed Vice Chairman and General Manager of SOSC in December 2014 Previously General Manager of Sinopec Jiangsu Oilfield. Chief and deputy party secretary of Jiangsu Petroleum Exploration Bureau of Sinopec Group ZHOU Shiliang 57 Executive Director Professor-level senior engineering with a Master’s degree Appointed Chairman of Supervisory Board, Secretary of CPC Committee and Discipline Inspection Committee, and Chairman of the Labour Union of SOSC in June 2012 Previously Manager of Sinopec Yunnan-Guizhou-Guangxi Oilfield Company. HR Department Head of Sinopec LI Lianwu 57 Director Professor-level senior engineer with an M.A. Appointed Party Secretary/Deputy Director of Sinopec Oil and Gas Exploration and Development Department in September 2014 Previously General Manager of Sinopec Henan Oilfield Company JIANG Bo 59 Independent Non- Senior economist with a Ph.D. executive Director Currently Director of China Sun Life Everbright Life Previously worked in Agricultural Bank of China as CFO and Chairman of the Labour Union of China Everbright Bank. Director of Shenyin & Wanguo Securities. Director of China Everbright Financial Holding Asset Management. Director of China Everbright Group ZHANG Huaqiao 51 Independent Non- Economist with two Master’s degrees executive Director Currently Chairman of Manniu Investment Company, Director of Nanjing Central Emporium. Independent Non- executive Director of several companies such as Yancoal Australia and Fosun International. Previously worked in the Planning Division of the People’s Bank of China and UBS in Hong Kong Wong, Kennedy 52 Independent Non- BBS awarded with LL.D degree and title of Justice of Peace Ying Ho executive Director Currently Chairman of Hong Kong resources Holdings Company. Director of several companies such as Bohai Industrial Investment Fund Management Company Source: Company data.
10 Ying Wang Asia Pacific Equity Research (852) 2800 8536 19 March 2016 [email protected]
Major corporate events prior to Sep-14 IPO
Table 4: SSC’s major corporate restructurings before its IPO in September 2014 Date Type Description Jun-12 Incorporation SSC was founded with registered capital of Rmb1 billion and Sinopec Group as its sole shareholder Nov-12 Registered Capital Increase Increased registered capital to Rmb4 billion Dec-12 Formation 8 regional petroleum engineering and technical services companies and 3 professional companies were formed Dec-12 Investor Change Changed the investor of Sinopec International Petroleum Service Corporation and Sinopec Ocean Exploration Corporation from Sinopec Group to SSC. Dec-12 Business DS Joint Venture (SSC:50%, Diavaz DEP S.A.:50%) signed a 30-year integrated oilfield service contact for geological study, exploration, production and management, and oilfield surface engineering construction Sep-13 Business Signed a US$1.5bn, 14-drilling rig contract with Saudi Aramco, becoming its largest onshore drilling contractor and key partner Oct-13 Business Fully responsible for provision of services covering entire development process, ranging from exploration and drilling to ground engineering construction in Yuanba Gas Field, with production capacity of 3.4bn m3. A total of 39 drilling wells was completed. Nov-13 Geophysical brand released Officially released the geophysical brand--I technology system with proprietary intellectual property rights Nov-13 Business Construction project of integration platform undertaken for Shengli Oilfield’s CB22F marine oil plant commenced production successfully 2014 Investor Change Changed the investor of Sinopec Offshore Oil Engineering Co., Ltd from Sinpec Group to SSC 2014 Equity Transfer Transferred its 100% equity interest in Sinopec Petroleum Engineering Machinery Co., Ltd. to Sinopec Group at no consideration. Apr-14 Business 2,170km Sichuan-East China Gas Transmission Pipeline undertaken for Sinopec Group successfully passed final acceptance of construction after three years of trial operation Jun-14 Business Fully responsible for provision of services covering entire development process, ranging from exploration and drilling to ground engineering construction in Fuling shale gas demonstration area. A total of 39 unconventional drilling wells were completed, 29 of which were put into production with a gas output of over 3.2m m3 per day. Aug-14 Business JY-42 platform successfully completed a synchronized fracturing of four wells in Fuling shale gas demonstration area Sep-14 Business Signed 15-year integrated oilfield service contract with Ecuador’s state oil company, PAM, to optimize production capacity and enhance recovery of three mature oilfields in eastern part of Ecuador Source: Company data.
11 Ying Wang Asia Pacific Equity Research (852) 2800 8536 19 March 2016 [email protected]
Sinopec Oilfield Service - H: Summary of Financials Income Statement Cash flow statement Rmb in millions, year end Dec FY13 FY14 FY15E FY16E FY17E Rmb in millions, year end Dec FY13 FY14 FY15E FY16E FY17E Revenues 88,707 77,991 62,833 59,431 65,982 EBIT 2,744 3,729 (143) (11) 100 % change Y/Y 2.8% (12.1%) (19.4%) (5.4%) 11.0% Depr. & amortization 6,792 4,382 4,711 5,048 5,386 EBITDA 9,536 8,111 4,568 5,038 5,485 Change in working capital (6,393) (1,001) (4,205) (1,377) 518 % change Y/Y 11.8% (14.9%) (43.7%) 10.3% 8.9% Taxes - - - - - EBIT 2,744 3,729 (143) (11) 100 Cash flow from operations 2,831 4,501 (148) 3,265 5,580 % change Y/Y 50.2% 35.9% (103.8%) (92.4%) (1021.9%) EBIT Margin 3.1% 4.8% (0.2%) (0.0%) 0.2% Capex (7,136) (2,490) (4,353) (4,353) (4,353) Net Interest (823) (770) (729) (695) (723) Disposal/(purchase) - - - - - Earnings before tax 2,180 3,320 (655) (406) (324) Net Interest (823) (770) (729) (695) (723) % change Y/Y 42.7% 52.3% (119.7%) (38.1%) (20.2%) Other 139 (38) 0 0 0 Tax (687) (901) 0 0 0 Free cash flow (3,742) 2,572 (3,772) (392) 1,951 as % of EBT 31.5% 27.1% 0.0% 0.0% 0.0% Net income (reported) 1,465 2,417 (655) (406) (324) Equity raised/(repaid) 1,149 0 1,333 0 0 % change Y/Y 50.7% 65.0% (127.1%) (38.1%) (20.2%) Debt raised/(repaid) (4,120) (2,384) 2,691 700 560 Shares outstanding 15,224 15,224 16,291 16,558 16,558 Other 6,547 463 1,185 0 0 EPS (reported) 0.10 0.16 (0.04) (0.02) (0.02) Dividends paid (1,414) (544) 0 0 0 % change Y/Y 26.8% 65.0% (125.3%) (39.1%) (20.2%) Beginning cash 3,758 1,694 1,202 1,922 1,535 Ending cash 1,622 1,202 1,922 1,535 3,322 DPS - - - - - Balance sheet Ratio Analysis Rmb in millions, year end Dec FY13 FY14 FY15E FY16E FY17E Rmb in millions, year end Dec FY13 FY14 FY15E FY16E FY17E Cash and cash equivalents 1,622 1,202 1,922 1,535 3,322 EBITDA margin 10.8% 10.4% 7.3% 8.5% 8.3% Accounts receivable 3,612 31,387 34,869 33,594 37,297 EBIT margin 3.1% 4.8% (0.2%) (0.0%) 0.2% Inventories 12,549 1,951 1,645 1,536 1,709 Net margin 1.7% 3.1% (1.0%) (0.7%) (0.5%) Others 26,859 9,994 9,982 9,982 9,982 Current assets 44,641 44,533 48,418 46,646 52,309 Sales per share growth (13.5%) (12.1%) (24.7%) (6.9%) 11.0% LT investments - - - - - Sales growth 2.8% (12.1%) (19.4%) (5.4%) 11.0% Net fixed assets 33,343 31,080 30,714 30,012 28,976 Net profit growth 50.7% 65.0% (127.1%) (38.1%) (20.2%) Total Assets 81,926 81,296 84,663 82,196 86,826 EPS growth 26.8% 65.0% (125.3%) (39.1%) (20.2%) Liabilities Interest coverage (x) 11.6 10.5 6.3 7.3 7.6 Short-term loans 14,415 12,016 14,904 15,044 15,156 Payables 40,121 42,926 41,739 38,977 43,371 Net debt to equity 56.5% 60.9% 64.8% 71.5% 66.5% Others 3,087 6,997 6,997 6,997 6,997 Sales/assets 1.1 1.0 0.8 0.7 0.8 Total current liabilities 57,623 61,938 63,639 61,018 65,524 Assets/equity 3.5 3.9 4.2 4.1 4.2 Long-term debt 580 568 371 931 1,379 ROE 6.5% 11.4% (3.3%) (2.0%) (1.6%) Other liabilities 54 93 50 50 50 ROCE 4.7% 7.8% (0.4%) (0.0%) 0.3% Total Liabilities 58,256 62,600 64,060 61,998 66,952 Shareholder's equity 23,585 18,697 20,604 20,199 19,875 BVPS (Rmb) - - - - - Source: Company reports and J.P. Morgan estimates.
12 Ying Wang Asia Pacific Equity Research (852) 2800 8536 19 March 2016 [email protected]
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Sinopec Oilfield Service - H (1033.HK, 1033 HK) Price Chart
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Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stock’s expected total return is compared to the expected total return of a benchmark country market index, not to those analysts’ coverage universe. If it does not appear
13 Ying Wang Asia Pacific Equity Research (852) 2800 8536 19 March 2016 [email protected]
in the Important Disclosures section of this report, the certifying analyst’s coverage universe can be found on J.P. Morgan’s research website, www.jpmorganmarkets.com.
J.P. Morgan Equity Research Ratings Distribution, as of December 31, 2015 Overweight Neutral Underweight (buy) (hold) (sell) J.P. Morgan Global Equity Research Coverage 44% 44% 12% IB clients* 52% 47% 35% JPMS Equity Research Coverage 45% 47% 8% IB clients* 70% 63% 50% *Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.
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15 Ying Wang Asia Pacific Equity Research (852) 2800 8536 19 March 2016 [email protected]
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"Other Disclosures" last revised January 01, 2016. Copyright 2016 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. #$J&098$#*P
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