20140721-巴黎银行证券-Challenges_ahead_11页_581kb

Anton Oilfield Services (3337 HK) Summary

Core Content

Anton Oilfield Services Group (3337 HK) is a leading independent oilfield services provider in China, offering services in well services, drilling services, production services, and field services. The report discusses the company's performance, challenges, and valuation adjustments as of 2014, based on BNP Paribas estimates.

Main Points

Operational Performance (2Q14)

• Anton's 2Q14 operational data was weaker than expected:
  • New orders declined by 42% quarter-over-quarter to RMB694 million.
  • Order backlog dropped by 6.1% q-q to RMB1,815 million.
• 1H14 revenue was estimated at RMB1,081 million, up 2.2% year-over-year, driven by strong overseas performance (+71% y-y) despite a weak domestic market (-15% y-y).
• This result fell short of the company's long-term growth guidance of 30% and only accounted for 35% of the full year revenue forecast.

Revenue and Net Profit Forecasts

• The report cuts 2014-2016 revenue forecasts by 4-9% due to weak domestic demand and slowing growth.
• Net profit forecasts for the same period are also cut by 4-9%.
• Expected net profit growth:
  • Flat y-y in 2014
  • 25% y-y in 2015 on revenue growth of 20% and flat interest expenses.
  • 19.3% y-y in 2016

Valuation Adjustments

• The target price is revised down to HKD4.40 from HKD4.90, a -10.2% change.
• The revised target EV/CE ratio is 2.2x, derived from an average ROCE of 16.2% and WACC of 9.6% for 2014-15.
• Anton is currently trading at a 21.8x 2014E P/E ratio with a two-year net profit growth of 13%, which is considered unattractive.

Key Information

Financial Highlights (2013A-2016E)

Dividend Yield and Valuation Metrics

• Dividend yield is expected to rise from 1.4% in 2014E to 2.1% in 2016E.
• EV/EBITDA is projected to decrease from 11.8x in 2014E to 8.1x in 2016E.
• Price/book ratio is expected to drop from 3.1x in 2014E to 2.4x in 2016E.
• Net debt/equity is forecasted to increase from 24.2% in 2014E to 35.0% in 2015E, then decrease to 26.4% in 2016E.

Challenges and Opportunities

Challenges

• Weak domestic demand: Revenue growth in the domestic market is expected to be -15% y-y.
• Increased competition: Particularly in the Ordos and Sichuan basins.
• Geopolitical risks: Especially in the Iraqi market, where the situation remains uncertain.
• Execution risk: Despite maintaining revenue growth targets, the company may struggle to meet them.

Opportunities

• Shale gas development: Expected to drive growth in the OFS sector.
• Iraq market: Potential for increased OFS demand due to withdrawal of international providers.
• Americas: Seen as the next growth driver, with services in Canada, Columbia, and Ecuador.

Competitive Advantage

• Anton aims to be the best independent OFS provider in China and the best Chinese OFS partner globally.
• It leverages technology advantage, integrated project capabilities, and a flexible business model.
• The company is focused on cost control amid increasing service price pressures.

Catalysts and Risks

Potential Catalysts

• New service tenders.
• Investment in new operation capacities.
• Positive news on shale gas development.

Upside Risks

• Improvement in Iraq: Could lead to increased OFS demand.
• Better-than-expected shale gas developments in China.

Downside Risks

• Slowdown in outsourcing process for national oil companies (NOCs).
• Decline in income per job for core service segments.
• Deteriorated situation in Iraq.

Financial Strength and Capital Structure

• Net debt/equity is projected to increase to 34.5% in 2015E, then decrease to 26.4% in 2016E.
• Current ratio is expected to remain stable, ranging from 1.8x in 2012A to 1.9x in 2016E.
• Interest cover is projected to drop to 4.2x in 2014E due to high interest expenses, but improve to 7.2x in 2016E.

Conclusion

• The report maintains a HOLD rating due to the unattractive valuation and execution risks.
• Despite long-term growth expectations, the current operational performance and domestic market conditions suggest caution.
• The company's strategic focus on Iraq and the Americas and its asset-light model may help mitigate some of the risks in the long term.

Key Executives

Summary of Changes

• Target Price: Cut from HKD4.90 to HKD4.40.
• EPS Forecasts: Revised downward by -7.2% to -11.4% for 2014-2016.
• Recurring EPS: Expected to be flat in 2014, then grow by 29.9% in 2015, and 19.3% in 2016.
• Net profit growth: Expected to be flat in 2014, then 25% in 2015.

Final Rating and Outlook

• Investment Rating: HOLD.
• Key Drivers: Domestic recovery, shale gas development, and expansion in the Americas.
• Key Risks: Continued domestic slowdown, geopolitical instability in Iraq, and execution challenges.