20230413-招银国际-三一国际-00631.HK-Acquisition_of_oil___gas_frac_equipment_a_positive_move_8页_1mb

SANY International (631 HK) Summary

Core Content

SANY International (631 HK) has announced its intention to acquire SANY Petroleum Intelligent Equipment from its controlling shareholder. This strategic move aims to expand the company's presence in the oil & gas fracturing equipment segment, which is viewed as a positive development due to the anticipated rise in oilfield spending, especially in unconventional fields, driven by global oil supply constraints and increased emphasis on energy security.

Main Points

• Acquisition Details:

  • The acquisition is valued at RMB2.98 billion, all in cash.
  • The P/E ratio of the acquisition is 7.7x for 2022, significantly lower than the 12.8x of Yantai Jereh (002353 CH) and SANYI's current valuation (~11x).
  • The deal is subject to shareholders' approval and the earnings forecast has not been revised yet.

• SANY Petroleum's Business:

  • Engaged in R&D, production, and sales of drilling, workover, and automated pipe handling equipment, along with oil & gas field technical services.
  • In 2022, SANY Petroleum achieved a 25.3% market share in fracturing trucks.
  • Revenue and net profit for 2022 grew by 20% and 27%, respectively, reaching RMB2.1 billion and RMB386 million.

• Key Financials:

  • Revenue: RMB2.1 billion in 2022, with 89% from equipment sales and 11% from oilfield services.
  • Net assets at end-2022: RMB567 million.
  • Revenue from SOE increased from 17% in 2020 to 29% in 2022, with further expectations of reaching 30-40%.

• Growth Potential:

  • Plans to launch more electric and intelligent products using strong R&D capabilities and smart factories.
  • Expansion into oilfield services leveraging the SANY brand and capabilities.

• Risk Factors:

  • Weakness in mining activities.
  • Underperformance of new product development.
  • Rebound in raw material costs.

Earnings Summary

Analyst Ratings

• CMBIG Rating: BUY
• Target Price: HK$13.00
• Previous Target Price: HK$13.00
• Upside/Downside: 64.3%
• Current Price: HK$7.91

Shareholding Structure

Stock Data

Key Financial Ratios

• Gross Margin: 23.4% (2022A), 35.5% (2023E)
• Operating Margin: 3.1% (2022A), 4.9% (2023E)
• EBITDA Margin: 14.7% (2022A), 15.3% (2023E)
• ROE: 17.8% (2022A), 18.5% (2023E)
• Net Debt to Equity: -0.1 (2022A), -0.2 (2023E)
• Current Ratio: 1.6 (2022A), 1.7 (2023E)

Earnings Growth

• Revenue Growth: 52.4% (FY22A), 18.4% (FY23E), 18.1% (FY24E), 16.0% (FY25E)
• Net Profit Growth: 53.2% (FY22A), 26.7% (FY23E), 16.7% (FY24E), 16.7% (FY25E)
• Adjusted Net Profit Growth: 53.2% (FY22A), 26.7% (FY23E), 16.7% (FY24E), 16.7% (FY25E)

Strategic Implications

• The acquisition is expected to boost SANYI's 2023E earnings by ~20% (annualized).
• With SANYI's net cash position, the acquisition is likely to enhance ROE.
• The company's strategy of boosting earnings through acquisitions is highlighted as a positive.

Key Products of SANY Petroleum

Valuation Bands

• P/E Band: 10.9x (2023E), 9.4x (2024E), 8.0x (2025E)
• P/B Band: 1.9x (2023E), 1.7x (2024E), 1.4x (2025E)

Conclusion

The acquisition of SANY Petroleum Intelligent Equipment is seen as a strategic move that aligns with the increasing demand for oilfield equipment, especially in unconventional fields. The deal is expected to enhance SANYI's earnings and ROE by utilizing idle cash and expanding into a growing market. While the financial forecast has not been revised, the BUY rating is maintained, with a target price of HK$13.00, indicating a positive outlook for the company's future performance.