中海油服(601808.CN)

China Oilfield Services-A:Lighter assets in 2017after asset impairment

时间:16-09-20 00:00    来源:瑞银证券

Low deepwater equipment utilization in mid-/long term; 15% asset impairment

Due to low oil prices, the utilization of deepwater drilling equipment was relativelyweak in H1, with the actual value of some drilling equipment lower than book value.As a result, COSL announced an asset impairment of Rmb7.1bn (15% of net assets) inits H116report. We factor the asset impairment into our 2016estimates and we aretrimming our 2016E drilling equipment utilization and day rate for the company toreflect the pressure on profit arising from the severe oilfield drilling market. We arelowering our 2016-8E EPS 263%, 4% and 4% to -Rmb1.96, Rmb0.20and Rmb0.51.

Lighter assets and higher oil prices to drive higher drilling utilization

We expect the utilization of drilling equipment to pick up, as the oil prices couldgradually rise to US$60in 2017. At the same time, the day rate for drilling could drop32% in 2016from 2014highs, although we see limited room for a further sharpdecline in 2017. Therefore, overall earnings could rebound. We believe the company'sasset impairment in H116has completely written down its goodwill in M&A over theyears. Therefore, we think the risk of impairment in 2017has eased sharply, while thelower depreciation of fixed assets should lead to higher ROE after 2017.

The market appears to have priced in an earnings recovery in 2018

COSL-A is trading at 1.6x 2016E PB. We believe the share price has factored inexpectations for the company's ROE to rebound along with oil prices and for theutilization of drilling equipment to rise to 78% after 2018. Moreover, with thecompany's share price gradually becoming less responsive to crude oil prices, we see arelatively limited boost to the share price if and when crude oil prices gradually rise toUS$50-65.

Valuation: Lowering PT; maintain Neutral rating

We maintain our Neutral rating and we are lowering our PT 5% to Rmb12.60, stillbased on 24.8x 2018E PE, to reflect relatively high valuation as COSL's operations passthe trough of the cycle. If crude oil prices rise to above US$65and remain there for anextended period, that could become an upside catalyst for the company.