CHINA OILFIELD SERVICES(601808)：STRONG GROWTH IN 1Q25 LARGELY IN LINE

机构：中银国际
研究员：Lawrence LAU/Rainey DAI

　　COSL’s earnings surged 40% YoY in 1Q25 to RMB887m, largely in line with our expectation. Improvement in margin, decrease in finance cost and lower profit tax rate were key drivers for the rapid growth. We expect COSL to see decent sequential growth in 2Q25 as 2Q is usually a peak season for the company. Although we trim our 2025 earnings forecast by 3%, we reiterate our BUY calls with the target price of its H shares lowered to HK$9.39.
　　Key Factors for Rating
　　In 1Q25, the operating days of its rigs surged 11.4% YoY. It was driven by the more friendly sea conditions and more packed arrangement of works in the domestic market. Its four semi-subs in Norway were also close to fully utilised.
　　However, its turnover grew 6% YoY only in 1Q25 as the growth of well services segment was slow and geophysical segment should see decline in revenue on lower overseas contributions.
　　Despite the slow growth in turnover, its net profit surged 40% YoY. Its gross margin improved from 16.3% in 1Q24 to 17.6% in 1Q25 on the strong performance of its drilling segment. The 23% YoY decline in finance cost also helped. More importantly, its effective profit tax rate fell from 26.5% in 1Q24 to 17.0% in 1Q25. Its operations in Norway recovered from a loss in 1Q24 to almost breaking even in 1Q25 as a few high day-rate contracts started to contribute. This swing in profitability helped to lower the effective tax rate.
　　Its 1Q25 earnings were largely in line with our expectation as it reached 21.3% of our original full-year forecasts.
　　We expect COSL to see stronger earnings on a QoQ basis in 2Q25 as 2Q is usually a peak season for the company. Its semi-sub NH8 has also arrived in Brazil to get ready to work on a high day-rate contract.
　　Key Risks for Rating
　　Lower-than-expected day rate / margin of its drilling segment.
　　Lack of progress in developing overseas markets.
　　Valuation
　　We lower our target price for its H shares from HK$9.47 to HK$9.39 to reflect the small cuts in our earnings forecasts. Our target valuation is still 0.9x 2025E P/B.
　　We raise the target price for its A shares from RMB20.60 to RMB20.90. We still base our target price on its 3-month average A-H premium which has widened from 133% to 137% since last March.