20220516-招银国际-海隆控股-01623.HK-A_forgotten_oilfield_service_play_set_for_recovery_5页_584kb

Hilong Holding (1623 HK) Summary

Core Content

Hilong Holding (1623 HK) is an integrated oilfield equipment and service provider, offering products and services across multiple segments, including oilfield equipment manufacturing and services, oilfield services, line pipe technology and services, and offshore engineering services. The company has a significant overseas presence, with 71% of its total revenue generated internationally in 2021. It is currently trading at HK$0.69, with a market cap of HK$1,171 million.

Main Points

• Industry Outlook: Hilong is positioned to benefit from the global recovery in oil & gas drilling activities. The mismatch between global rig counts and high oil prices is expected to drive demand for its services.

• Revenue and Growth: Hilong reported a revenue of RMB2,917 million in FY21A, with a YoY growth of 11%. The company has set a target to achieve RMB5 billion in revenue within three years, implying a 20% CAGR from 2022E to 2024E.

• Segment Performance:

  • Oilfield Equipment Manufacturing and Services (41% of total revenue): Achieved 1% YoY sales volume growth in 2021. Expected to see a 10-20% sales volume growth and margin expansion in 2022E, driven by ASP increases.
  • Oilfield Services (29% of total revenue): Delivered 24% YoY revenue growth in 2021. Target is to increase rig fleet utilization from <70% to 80%, which is a key driver for revenue and margin growth.
  • Line Pipe Technology and Services (13% of total revenue): Revenue grew 53% YoY in 2021, mainly due to line pipe coating and CWC services. Expected to grow 10-15% this year.
  • Offshore Engineering Services (16% of total revenue): Revenue increased 26% YoY to RMB478 million in 2021. Offshore oil & gas and wind power construction account for 70% and 30% of this segment’s revenue, respectively. High oil prices are expected to boost offshore project spending, offering growth opportunities.

• Valuation Metrics:

  • The stock is currently trading at 0.3x P/B, significantly below the historical average of 0.84x.
  • EV/EBITDA ratio is 4.4x (FY21A), while P/E ratio is 5.9x.
  • The company has a high net gearing of 63% (FY21A), indicating a leveraged capital structure.

• Share Performance:

  • The stock has shown strong performance over the past 12 months, with a 94.0% absolute return.
  • Shareholding is dominated by Zhang Jun, who owns 60.1% of the shares.

• Risks and Disclosures:

  • The report is not a recommendation and is not tailored to individual investors.
  • There may be conflicts of interest, and CMBIGM is not liable for any losses incurred from reliance on the information.
  • The report is intended for specific institutional investors in the US, UK, and Singapore, with restrictions on distribution.

Key Information

• Company Background: Founded in 2002 and listed on the HKEX in 2011, Hilong operates in the oilfield services sector, covering equipment, manufacturing, and offshore engineering.

• Segments and Revenue Breakdown:

  • Oilfield equipment manufacturing and services: RMB1,205 million in FY21A.
  • Oilfield services: RMB845 million in FY21A.
  • Line pipe technology and services: RMB389 million in FY21A.
  • Offshore engineering services: RMB478 million in FY21A.

• Gross Margin Trends:

  • Oilfield equipment manufacturing and services: Gross margin increased to 36.3% in FY21A.
  • Line pipe technology and services: Gross margin reached 34.6% in FY21A.
  • Oilfield services: Gross margin was 34.8% in FY21A.
  • Offshore engineering services: Gross margin was 6.7% in FY21A.

• EBIT and EBIT Margin:

  • Total EBIT in FY21A was RMB582 million, with an EBIT margin of 15.9%.
  • Segment EBIT margins vary, with the highest in oilfield equipment manufacturing and services at 36.3% and the lowest in offshore engineering services at 6.7%.

• Market Position: The stock has shown strong performance in recent months, with a 54.8% 1-month return and 80.6% 3-month return. However, it remains undervalued based on historical P/B ratios.

Conclusion

Hilong Holding is well-positioned to benefit from the global recovery in oil & gas drilling activities. With a solid backlog and targeted growth plans, the company is expected to see improvements in sales volume and gross margins. Despite its recent performance, the stock remains significantly undervalued, offering potential for a rebound. Investors are advised to consult with financial advisors and be aware of the potential conflicts of interest and regulatory restrictions.