1. business and industrial
2. company
3. earnings

Company Update, 6 January 2015
Petro-King Oilfield Services (2178 HK)
Energy & Petrochemicals - Oil & Gas Services
Market Cap: USD169m
Neutral (Maintained)
Target Price:
Price:
HKD1.22
HKD1.21
Macro
Risks
Bleaker Outlook Already Priced In
Growth
Value
Petro-King Oilfield Services (2178 HK)
Relative to Hang Seng Index (RHS)
132
5.10
120
3.60
84
3.10
72
2.60
60
2.10
48
1.60
36
1.10
24
0.60
18
16
14
12
10
8
6
4
2
12
Jul-14
May-14
Nov-14
96
Sep-14
108
4.10
Mar-14
4.60
Jan-14
Vol m
Price Close
5.60
0
0
.2
0
0
On 24 Dec, Petro-King issued a profit warning and proposed a rights .
0
offer to raise HKD151m. We see the profit warning as a negative 0
surprise and slash our FY14-16 earnings forecasts. We cut our TP to 0
HKD1.22 (0.7x FY15F P/BV, 0.8% upside). Maintain NEUTRAL as we
believe the negatives have been priced in, with its share price having
dropped 9% since the announcement.



Source: Bloomberg
Avg Turnover (HKD/USD)
2.43m/0.31m
Cons. Upside (%)
50.4
Upside (%)
0.8
52-wk Price low/high (HKD)
1.08 - 4.94
Free float (%)
30
Share outstanding (m)

1,080
Shareholders (%)
Termbary Natural Resources
Co. LTD
King Shine Group
31.5
31.4
TCL Corp
6.9
Share Performance (%)
YTD
1m
3m
6m
12m
Absolute
12.0
(16.0)
(46.9)
(46.9)
(70.9)
Relative
12.0
(14.3)
(49.2)
(47.1)
(74.4)


2

.
1
0
.
2





Profit warning a negative surprise. Based on unaudited accounts and
confirmed orders and contracts for 2014, Petro-King Oilfield Services
(Petro-King) expects to record a net loss for FY14. This came as a
negative surprise as it is much worse than our original recurring net profit
forecasts of HKD135m (-34% YoY) for FY14 and HKD114m (-14% YoY)
for 2H14.
Rights offer raises concern over cash flow. On the same day, PetroKing proposed to raise HKD151m through a rights offer at HKD0.98 per
share on the basis of one rights share for every seven existing shares.
Upon completion of the rights issue, share capital will be enlarged by
about 14%. We believe the rights offer is primarily driven by Petro-King’s
tight cash flow position and negative outlook for operation in FY15.
Share price rally on oil industry ownership reform. On 5 Jan, shares
of oilfield service providers including Petro-King rallied by 7-13%,
stimulated by news reports that China National Petroleum
Corporation (CNPC) has kicked off a mixed-ownership reform in Xinjiang.
It is expected that there will be more bold reform actions in 2015 to
encourage private capital to participate in upstream exploration and
production (E&P) operations, which may revive investments in the field.
Gloomy earnings outlook. We believe Petro-King’s operation has been
severely challenged by a tough operating environment in both domestic
and overseas markets. We now see a loss of HKD35m for 2H14 and a
loss of HKD15m for FY14. For FY15, we expect a limited recovery with a
net profit of HKD30m.
Maintain NEUTRAL, lower TP to HKD1.22. We change our valuation to
P/BV from P/E-based, given the company’s highly volatile earnings. We
cut our TP to HKD1.22, based on 0.7x FY15F P/BV, 2SD below its
forward P/BV mean. Our previous TP of HKD2.10 was based on a 12x
FY15F P/E. As its share price has dropped 9% since the announcement,
we believe the negatives have been priced in. Maintain NEUTRAL.
Forecasts and Valuations
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
1,057
1,060
867
1,014
1,141
Reported net profit (HKDm)
180
207
(22)
30
57
Recurring net profit (HKDm)
149
205
(15)
30
Recurring net profit growth (%)
69.8
37.8
(107.1)
Charles Zhang +852 2103 5842
Recurring EPS (HKD)
0.20
0.21
(0.01)
[email protected]
Recurring P/E (x)
6.1
5.8
P/B (x)
0.86
0.59
P/CF (x)
6.91
Shariah compliant
Total turnover (HKDm)
EV/EBITDA (x)
Return on average equity (%)
Net debt to equity (%)
Our vs consensus EPS (adjusted) (%)
na
na
na
0.62
0.87
57
88.5
0.02
0.05
49.6
26.3
0.69
0.68
na
0.99
4.4
3.3
(3.2)
13.0
17.7
12.7
(1.0)
1.4
1.8
2.5
net cash
net cash
4.8
net cash
(111.5)
(84.2)
(72.5)
2.6
Source: Company data, RHB
See important disclosures at the end of this report
Powered by EFA
TM
Platform
1
Petro-King Oilfield Services (2178 HK)
6 January 2015
Challenging Outlook
Profit warning a negative surprise. Based on unaudited management accounts for
the 11 months ended Nov 2014 and confirmed orders and service contracts for the
month ending Dec 2014, Petro-King expects to record a net loss for FY14. This came
as a negative surprise as it is much worse than our original recurring net profit
forecasts of HKD135m (-34% YoY) for FY14 and HKD114m (-14% YoY) for 2H14.
This indicates that revenue growth and margins have deteriorated significantly in
2H14.
Falling revenue and rising costs. The company explained that the net loss was
mainly caused by declining revenue and rising operating costs. The drop in revenue
was due to a weak Chinese market and its exposure in Venezuela. The increase in
operating costs was mainly due to Petro-King’s expansion in the number of service
staff and equipment for the unconventional gas division.
Profit warning reflects a challenging operating environment. We believe PetroKing’s operation has been severely challenged by a tough operating environment,
both in domestic and overseas markets. In China, we suspect its production
enhancement segment continued to witness a decline amid a slowdown in business
volume from tight gas/oil wells in Ordos Basin. In Venezuela, receivables collection
from Petroleos de Venezuela S.A. (PDVSA) continued to be slow and restrained its
well completion revenue. Amid the recent sharp drop in oil prices, we foresee the
operating environment and earnings outlook to remain challenging and uncertain in
FY15. Based on the limited information available, we now anticipate a loss of
HKD35m for 2H14 and a loss of HKD15m for FY14. For FY15, we expect a limited
recovery with a net profit of HKD30m.
Figure 1: 2H14 results forecasts (HKDm)
Drilling
1H13
2 H13
1H14
Actual
Actual
Actual
2 H14
RHB
Diff (% )
FY 14 F
RHB
29
38
66
41
8.0
Well completion
214
39
30
21
(46.2)
51
Production enhancement
159
261
118
175
(32.7)
294
Oilfield project services
402
337
214
237
(29.7)
451
19
22
64
49
124.7
113
Consultancy services
Manufacturing & sales of tools &
equipment
106
75
206
75
228
10.8
303
Re ve nue
496
565
353
5 14
(9.0)
867
YoY chg (%)
60.1%
- 24.5%
- 28.7%
- 9.0%
COGS
(315)
(307)
(232)
(453)
47.5
(685)
G ross profit
18 1
258
12 1
61
(76.3)
18 2
YoY chg (%)
86.3%
16.3%
- 33.1%
N/A
GPM
36.5%
45.6%
34.3%
11.9%
Opex & others
Opex & others as % of revenue
O pe ra ting profit
YoY chg (%)
Operating margin
Finance expense & others
P BT
Income tax
Effective tax rate
MI
Ne t profit
(74)
(105)
(94)
(105)
14.9%
18.6%
26.7%
20.4%
15 3
13.8%
- 74.9%
N/A
21.6%
27.0%
7.6%
- 8.5%
(8)
(4)
(234.7)
(12)
(4 8 )
(131.0)
(2 9 )
10
(144.7)
10 4
15 6
19
(26)
(23)
(5)
25.4%
14.5%
24.2%
(9)
69
(6)
12 7
(1)
13
(128.8)
(17 )
- 2.0%
21.0%
5
18.9%
3
(144.8)
2
(3 5 )
(127.8)
(2 2 )
YoY chg (%)
- 7.9%
36.1%
- 80.4%
N/A
NPM - reported
13.8%
22.5%
3.8%
- 6.9%
72
13 3
20
Ne t profit - re c urring
(199)
23.0%
10 7
3
(4 4 )
(0.3)
133.9%
(3)
27
21.0%
(3 5 )
YoY chg (%)
59.6%
27.4%
- 72.0%
N/A
NPM - recurring
14.6%
23.5%
5.7%
- 6.8%
- 2.5%
(126.2)
(15 )
- 1.7%
Source: RHB
See important disclosures at the end of this report
2
Petro-King Oilfield Services (2178 HK)
6 January 2015
Figure 2: Changes to our forecasts (HKDm)
FY 14 F
FY 14 F
New
Old
106
126
51
63
Production enhancement
294
377
Oilfield project services
451
567
Consultancy services
113
FY 15 F
FY 15 F
New
Old
(15.8)
117
136
(20.0)
56
68
(22.2)
323
408
(20.5)
496
612
121
(6.7)
125
303
309
(1.8)
394
Tota l re ve nue
867
997
(13 . 1)
1, 0 14
COGS
(685)
(596)
G ross profit
18 2
401
21.0%
40.2%
Drilling
Well completion
Manufacturing & sales of tools & equipment
GPM
Chg%
14.9
(5 4 . 6 )
FY 16 F
FY 16 F
New
Old
(14.2)
135
147
(8.7)
(18.5)
64
74
(13.2)
(20.8)
371
440
(15.6)
(19.1)
570
661
(13.8)
134
(6.7)
137
147
(6.7)
401
(1.8)
434
442
(1.8)
(11. 6 )
1, 14 1
1, 2 5 0
(8 . 7 )
1, 14 7
(720)
(640)
294
508
29.0%
44.2%
Chg%
12.6
(4 2 . 0 )
(764)
(672)
376
578
33.0%
46.2%
Chg%
13.7
(3 4 . 9 )
Distribution expenses
(17)
(17)
(0.7)
(20)
(20)
1.0
(23)
(22)
4.2
Marketing expenses
(26)
(30)
(13.1)
(30)
(34)
(11.6)
(34)
(37)
(8.7)
R&D
(17)
(20)
(13.1)
(20)
(23)
(11.6)
(23)
(25)
(8.7)
Other expenses (admin)
(95)
(110)
(13.1)
(112)
(126)
(11.6)
(125)
(137)
(8.7)
O pe ra ting e xpe nse s
(15 6 )
(17 7 )
(11.8)
(18 3 )
(2 0 4 )
(10.4)
(2 0 5 )
(2 2 2 )
(7.5)
Opex as % of revenue
18.0%
17.8%
18.0%
17.8%
18.0%
17.8%
(40)
(40)
-
(64)
(64)
-
(88)
(88)
(3)
(3)
-
2
2
-
2
2
50
243
86
271
5.0%
21.2%
7.5%
21.7%
D&A
Others
O pe ra ting profit
Operating margin
(17 )
- 2.0%
Interest income
Finance cost
EBT
EBT margin
Effective tax rate
NPM (reported)
7
-
7
7
-
7
7
(19)
-
(17)
(17)
-
(17)
(17)
5
18.9%
2
Ne t profit - re porte d
(2 2 )
- 2.5%
Ne t profit - re c urring
18.2%
(15 )
16 9
N/A
17.0%
(32)
N/A
18.9%
(10)
12 8
N/A
N/A
12.8%
13 5
NPM (recurring)
- 1.7%
13.5%
EP S - re c urring
(0.01)
0.13
1080.4
1080.4
S ha re s outsta nding (mn) - ba sic a s a t 3 1 De c
(79.2)
7
- 3.3%
MI
N/A
(19)
(2 9 )
Income tax
18 1
N/A
40
232
3.9%
20.2%
(8)
(44)
18.9%
18.9%
(2)
(13)
30
17 5
3.0%
15.3%
30
17 5
3.0%
15.3%
N/A
0.02
0.17
-
1234.7
1080.4
(82.8)
(82.8)
(82.8)
(82.8)
(82.8)
75
260
6.6%
20.8%
(14)
(49)
18.9%
18.9%
(4)
(15)
57
19 6
5.0%
15.7%
57
19 6
5.0%
15.7%
(85.5)
0.05
0.19
14.3
1234.7
1080.4
(68.3)
(71.1)
(71.1)
(71.1)
(71.1)
(71.1)
(75.7)
14.3
Source: RHB
See important disclosures at the end of this report
3
Petro-King Oilfield Services (2178 HK)
6 January 2015
Rights offer raises concern over cash flow
Rights offer raises concern over cash flow. Petro-King also announced that it will
raise HKD151m through a rights offer at a price of HKD0.98 per rights share and on
the basis of one rights share for every seven existing shares. Upon completion of the
rights issue, its share capital will be enlarged by about 14% from 1,080.4m shares to
1,234.7m shares. We believe the rights offer is primarily driven by Petro-King’s tight
cash flow position and negative outlook for operation in FY15.
Yantai Jereh (002353 CH, NR) as an underwriter in the rights offer. Yantai Jereh
(Jereh), a leading integrated oilfield equipment and services provider whose revenue
is more than four times higher than Petro-King’s, joins the rights issue as an
underwriter. Currently, Jereh holds 0.74% of Petro-King’s shares. In the event the
rights shares cannot be fully sold, Jereh has a chance to raise its position in PetroKing to 5.44%. We see this as positive news, with the hope that Jereh may become a
major shareholder of Petro-King.
Share price rally on oil industry reform
Optimism on oil industry ownership reform. On 5 Jan, shares of oilfield service
providers rallied by 7-13% (Petro-King was up by 10%), stimulated by news reports
that CNPC has kicked off a mixed-ownership reform. According to Xinjiang local
media, CNPC kicked off a mixed-ownership reform in Xinjiang with its sales
marketing branch. On 1 Jan, CNPC officially changed the status of its sales
marketing company in Xinjiang from a branch company to a locally-registered limited
liability company, paving the way for future joint-venture cooperation with local
companies in Xinjiang. Another news report by China Securities Daily also indicates
that there will be more bold reform actions in 2015 to encourage private capital to
participate in upstream E&P operations. If this materialises, we expect the mixedownership reform of China’s oil industry, particularly in the upstream E&P sector, to
revive investments in the field and benefit oilfield service providers.
Reduce earnings forecasts, maintain NEUTRAL
Cut earnings forecasts, maintain NEUTRAL. We slash our recurring net profit
forecasts for FY14/FY15/FY16 by 111%, 83% and 71% respectively. Given the
company’s highly volatile earnings, we change our valuation to P/BV from P/E-based.
Our new TP of HKD1.22 is based on 0.7x FY15F P/BV, 2SD below its forward P/BV
mean. We believe this is justified by Petro-King's more uncertain earnings outlook.
However, as its share price has dropped by about 9% since the announcement of the
profit warning, we believe the negatives have been priced in, and we see its earnings
returning to net profit in FY15. Thus, we maintain our NEUTRAL rating.
Figure 3: Forward P/BV band
7
Share Price (HKD)
6
5
+2SD = 2.8x
4
+1SD = 2.3x
Mean = 1.8x
3
-1SD = 1.3x
2
-2SD = 0.7x
1
0
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Source: Bloomberg, RHB
See important disclosures at the end of this report
4
Petro-King Oilfield Services (2178 HK)
6 January 2015
Figure 4: Peer Comparison
Com pany
Ticker
Petro-King
2178 HK
Price Mkt cap
(USDm )
1.21
169
3-m th
avg t/o
(USDm )
0.3
P/E
Hist
(x)
P/E
FY1
(x)
P/E EPS FY1 EPS FY2 3-Yr EPS PEG Div yld Div yld P/BV P/BV
Rev
FY2
YoY%
YoY% Cagr (%) (x) Hist (%) FY1 (%) Hist FY1
Hist
(x)
(x)
(x) (USDm )
6.1 (85.9) 49.6
10.0
9.7
(106.8)
(5.9)
N/A
4.1
N/A
0.6
0.6
12.1
(1.0)
4.3
2.5
3.8
3.7
1.3
1.2
13.3
11.5
9.9
7.9
1.0
3.6
4.0
1.3
1.1
15.1
14.3
14.4
11.6
1.1
1.6
2.2
2.3
2.0
14.5
14.8
6.6
1.3
2.6
2.0
1.6
1.5
15.7
0.4
3.8
3.7
1.2
1.0
(10.6) N/A
3.6
1.3
1.5
1.4
HSI
23,721
HSCEI
12,207
8.5
8.0
7.2
7.3
CSI300
3,642
16.1
13.3
11.6
21.6
13.2
13.8
12.4
29.5
(4.4)
Adjusted sector avg*
10.7
10.2
(65.7) 1.3
137
GPM
Net
ROE
ROE
Hist m argin Hist (%) FY1 (%)
(%) Hist (%)
N/A
18.5
23.6
13.2
16.2
13.9
386
N/A
12.5
16.9
16.5
407
44.3
15.1
11.4
6.0
4,399
N/A
24.5
20.4
18.6
44.3
17.4
16.2
13.7
HK listed oil & gas services
Spt Energy Group 1251 HK
1.69
334
2.1
6.9
6.6
5.3
3.6
25.0
Anton Oilfield
3337 HK
1.87
533
7.4
8.4
31.9
16.5
(73.6)
93.6
China Oilfield-H
2883 HK
13.98
13,806
41.7
7.5
6.8
7.2
10.6
(5.8)
2.4
2.8
3.8
4.3
1.2
1.2
7.6
15.1
9.7
(19.8)
37.6
2.5
1.6
3.7
3.1
1.3
1.2
Average
US oil & gas services
Schlumberger Ltd SLB US
85.67 110,240
944.0
16.8
15.4
16.8
9.0
(7.8)
3.1
5.0
1.9
1.9
2.7
2.7
45,266
21.9
14.9
17.3
17.5
Halliburton Co
39.49
33,466 1,057.6
16.7
10.0
11.7
67.3
(14.7)
16.5
0.6
1.6
1.6
2.2
2.1
29,402
15.2
7.2
24.0
22.9
Baker Hughes Inc BHI US
56.17
24,299
514.3
22.7
14.5
17.4
56.9
(16.6)
12.4
1.2
1.1
1.1
1.3
1.3
22,364
17.0
4.9
7.3
9.1
Weatherford Inte WFT US
11.65
9,015
176.1
N/A
11.3
12.1
N/A
(6.8)
(234.8) N/A
N/A
0.0
1.1
1.1
15,263
19.4
(2.3)
(4.6)
6.5
18.7
12.8
14.5
44.4
(11.5)
(50.7) 2.3
1.5
1.1
1.8
1.8
18.4
6.2
11.0
14.0
HAL US
Average
A-share oil & gas services
Yantai Jereh-A
002353 CH 31.74
4,898
70.3
28.9
20.8
14.8
38.5
40.4
38.3
0.5
0.5
0.7
3.9
3.6
590 43.26
26.84
22.76
22.74
China Oil Hbp-A
002554 CH 10.93
801
16.5
47.5
34.9
25.0
36.1
39.9
33.6
1.0
0.5
1.3
3.7
3.5
152 27.34
10.88
8.92
10.09
Gi Technologie-A 300309 CH 18.82
657
9.3
55.4
41.2
29.3
34.4
40.7
37.0
1.1
0.5
0.4
3.3
3.1
37 55.92
31.50
6.05
7.57
43.9
32.3
23.0
36.3
40.3
36.3
0.9
0.5
0.8
3.6
3.4
42.2
23.1
12.6
13.5
Average
Oil equipm ents
Hilong Holding
1623 HK
2.03
444
3.2
7.9
6.9
5.9
14.3
16.0
14.7
0.5
3.8
4.4
1.0
0.9
394 40.29
14.05
16.30
14.32
Honghua Group
196 HK
1.08
451
1.9
5.1
6.8
5.8
(24.7)
16.4
(0.4) N/A
5.6
4.3
0.6
0.6
1,294 23.68
6.68
10.73
8.43
6.5
6.8
5.9
(5.2)
16.2
4.7
4.3
0.8
0.7
32.0
10.4
13.5
11.4
Average
7.2
0.5
* adjusted sector average includes only HK and US listed oil & gas servicing companies
Source: Bloomberg, RHB
See important disclosures at the end of this report
5
Petro-King Oilfield Services (2178 HK)
6 January 2015
Financial Exhibits
Profit & Loss (HKDm)
Total turnover
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
1,057
1,060
867
1,014
1,141
Cost of sales
(598)
(497)
(581)
(599)
(627)
Gross profit
459
563
286
416
513
Gen & admin expenses
(19)
(28)
(40)
(64)
(88)
Selling expenses
(23)
(19)
(17)
(20)
(23)
(218)
(249)
(243)
(284)
(319)
Operating profit
199
267
(14)
48
83
Operating EBITDA
218
295
38
124
184
Other operating costs
Depreciation of fixed assets
(7)
(26)
(39)
(64)
(88)
Amortisation of intangible assets
(12)
(2)
(13)
(13)
(13)
Operating EBIT
199
267
(14)
48
-
-
Net income from investments
(0)
Other recurring income
-
83
-
(7)
3
(3)
2
Interest income
0
13
7
7
7
Interest expense
(8)
(13)
(19)
(17)
(17)
-
-
Other non-recurring income
-
-
Pre-tax profit
232
270
(29)
40
75
Taxation
(46)
(49)
5
(8)
(14)
Minority interests
48
2
(15)
2
(2)
(4)
Profit after tax & minorities
180
(6)
207
(22)
30
57
Reported net profit
180
207
(22)
30
57
Recurring net profit
149
205
(15)
30
57
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
199
267
(14)
48
83
19
28
52
76
100
(46)
(674)
Source: Company data, RHB
Cash flow (HKDm)
Operating profit
Depreciation & amortisation
Change in working capital
Other operating cash flow
Operating cash flow
Interest received
Interest paid
2
(8)
173
(387)
1,406
(1,474)
(3)
1,442
(1,347)
0
13
7
7
7
(13)
(19)
(17)
(17)
(35)
(37)
5
(8)
Cash flow from operations
131
(424)
1,435
(1,365)
(136)
(403)
(23)
172
(159)
(231)
(200)
Dividends paid
(13)
(120)
(53)
Proceeds from issue of shares
441
948
Other investing cash flow
Cash flow from investing activities
Increase in debt
Other financing cash flow
95
(430)
35
-
(200)
-
(200)
-
(200)
6
(8)
-
-
137
-
-
-
-
-
863
84
6
Cash at beginning of period
73
137
345
1,665
Total cash generated
64
209
1,319
(1,559)
Forex effects
(0)
-
-
-
345
(200)
-
92
137
(14)
1,504
-
(200)
Cash flow from financing activities
Implied cash at end of period
2
1,528
(8)
Tax paid
Capex
1,342
2
1,665
106
(8)
106
1,296
1,401
Source: Company data, RHB
See important disclosures at the end of this report
6
Petro-King Oilfield Services (2178 HK)
6 January 2015
Financial Exhibits
Balance Sheet (HKDm)
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
Total cash and equivalents
172
506
1,825
266
1,562
Inventories
163
299
(132)
305
Accounts receivable
650
1,004
(197)
1,142
Other current assets
106
146
83
97
109
Total current assets
1,091
1,955
1,579
1,810
1,469
Tangible fixed assets
168
309
470
606
718
Intangible assets
572
570
557
544
532
2
15
15
15
15
742
894
1,042
1,165
1,265
Total other assets
Total non-current assets
Total assets
(123)
(79)
1,832
2,849
2,621
2,975
2,734
Short-term debt
199
233
371
371
371
Accounts payable
298
243
(44)
268
(32)
Other current liabilities
233
132
131
135
141
Total current liabilities
730
609
458
773
479
Other liabilities
12
15
15
15
15
Total non-current liabilities
12
15
15
15
15
Total liabilities
741
624
472
788
494
Share capital
672
1,635
1,635
1,635
1,635
Retained earnings reserve
330
520
445
481
530
50
36
36
36
36
1,053
2,191
2,116
2,152
2,200
35
33
35
39
0
(0)
Other reserves
Shareholders' equity
Minority interests
38
Other equity
-
-
Total equity
1,091
2,226
2,149
2,187
2,240
0
Total liabilities & equity
1,832
2,849
2,621
2,975
2,734
Source: Company data, RHB
Key Ratios (HKD)
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
Revenue growth (%)
89.0
0.3
(18.2)
17.0
12.4
Operating profit growth (%)
83.7
34.5
(105.2)
0.0
73.6
Net profit growth (%)
128.4
14.9
(110.6)
0.0
88.5
EPS growth (%)
127.2
(13.3)
(110.1)
0.0
88.5
7.0
46.2
(4.5)
(11.0)
2.3
Operating margin (%)
18.8
25.2
(1.6)
4.7
7.3
Net profit margin (%)
17.0
19.5
(2.5)
3.0
5.0
Return on average assets (%)
11.7
8.8
(0.8)
1.1
2.0
Return on average equity (%)
17.7
12.7
(1.0)
1.4
2.6
2.5
(12.3)
(67.7)
4.8
(53.2)
0.18
(0.43)
1.38
(1.11)
1.22
Bv per share growth (%)
Net debt to equity (%)
Recurrent cash flow per share
Source: Company data, RHB
See important disclosures at the end of this report
7
Petro-King Oilfield Services (2178 HK)
6 January 2015
SWOT Analysis
 The only China-based oilfield service company with
turbine drilling technology
 Failure of
payment by
PDVSA
 Strong ties with Sinopec, winning a large number of
multi-stage fracking jobs in bidding
 Foreign oilfield
service
companies
bolstering
business
development in
China
 Developing in-house oil servicing tools to enhance
cost competitiveness
 Possibly larger
exploration and
production
(E&P) spending
by the new
Venezuelan
Government
 Severe global
economic
slowdown may
derail capex
spending
among national
oil companies
 Strong demand
for stimulation
services due to
newly-found low
permeability oil
and gas
resources
 High reliance on Sinopec and PDVSA
 A relatively short track record
P/E (x) vs EPS growth
P/BV (x) vs ROAE
15%
140
1600%
1
13%
120
1300%
1
10%
100
1000%
1
8%
80
700%
0
5%
60
400%
0
3%
40
100%
0
0%
20
-200%
0
-3%
0
-500%
0
-5%
P/E (x) (lhs)
EPS growth (rhs)
Source: Company data, RHB
Jan-13
P/B (x) (lhs)
Jan-16
1
Jan-15
1900%
Jan-14
18%
160
Jan-12
1
Jan-16
2200%
Jan-15
20%
180
Jan-14
1
Jan-13
2500%
Jan-12
200
Return on average equity (rhs)
Source: Company data, RHB
Company Profile
Petro-King Oilfield Services is an independent oilfield service company that provides high-end services to national oil companies in
China and other countries. Founded in 2002, the company has grown from a consultant to a vertically-integrated oilfield service provider
with production lines of packers, valves and control panels in Singapore and Shenzhen to support its well completion and production
enhancement services.
See important disclosures at the end of this report
8
Petro-King Oilfield Services (2178 HK)
6 January 2015
Recommendation Chart
Price Close
2.10
3.38
4.47
4.20
6.20
Recommendations & Target Price
na
6.50
5.50
4.50
3.50
2.50
1.50
Buy
0.50
Mar-13
Neutral
Sell
Aug-13
Trading Buy
Feb-14
Take Prof it
Not Rated
Aug-14
Source: RHB, Bloomberg
Date
Recommendation
Target Price
Price
2014-08-28
Neutral
2.10
2.26
2014-03-24
Neutral
3.38
3.50
2013-12-13
Neutral
4.47
4.32
2013-11-15
Neutral
4.47
4.10
2013-08-27
Neutral
4.47
4.06
2013-07-22
Neutral
4.20
3.60
2013-05-29
Neutral
6.20
6.07
Source: RHB, Bloomberg
See important disclosures at the end of this report
9
RHB Guide to Investment Ratings
Buy: Share price may exceed 10% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
Not Rated: Stock is not within regular research coverage
Disclosure & Disclaimer
All research is based on material compiled from data considered to be reliable at the time of writing, but RHB does not make any representation or
warranty, express or implied, as to its accuracy, completeness or correctness. No part of this report is to be construed as an offer or solicitation of an offer
to transact any securities or financial instruments whether referred to herein or otherwise. This report is general in nature and has been prepared for
information purposes only. It is intended for circulation to the clients of RHB and its related companies. Any recommendation contained in this report does
not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This report is for the
information of addressees only and is not to be taken in substitution for the exercise of judgment by addressees, who should obtain separate legal or
financial advice to independently evaluate the particular investments and strategies.
This report may further consist of, whether in whole or in part, summaries, research, compilations, extracts or analysis that has been prepared by RHB’s
strategic, joint venture and/or business partners. No representation or warranty (express or implied) is given as to the accuracy or completeness of such
information and accordingly investors should make their own informed decisions before relying on the same.
RHB, its affiliates and related companies, their respective directors, associates, connected parties and/or employees may own or have positions in
securities of the company(ies) covered in this research report or any securities related thereto, and may from time to time add to, or dispose off, or may be
materially interested in any such securities. Further, RHB, its affiliates and related companies do and seek to do business with the company( ies) covered
in this research report and may from time to time act as market maker or have assumed an underwriting commitment in securities of such company(ies),
may sell them or buy them from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory or
underwriting services for or relating to such company(ies), as well as solicit such investment, advisory or other services from any entity mentioned in this
research report.
RHB and its employees and/or agents do not accept any liability, be it directly, indirectly or consequential losses, loss of profits or damages that may arise
from any reliance based on this report or further communication given in relation to this report, including where such losses, loss of profits or damages are
alleged to have arisen due to the contents of such report or communication being perceived as defamatory in nature.
The term “RHB” shall denote where applicable, the relevant entity distributing the report in the particular jurisdiction mentioned specifically herein below
and shall refer to RHB Research Institute Sdn Bhd, its holding company, affiliates, subsidiaries and related companies.
All Rights Reserved. This report is for the use of intended recipients only and may not be reproduced, distributed or publish ed for any purpose without prior
consent of RHB and RHB accepts no liability whatsoever for the actions of third parties in this respect.
Malaysia
This report is published and distributed in Malaysia by RHB Research Institute Sdn Bhd (233327-M), Level 11, Tower One, RHB Centre, Jalan Tun Razak,
50400 Kuala Lumpur, a wholly-owned subsidiary of RHB Investment Bank Berhad (RHBIB), which in turn is a wholly-owned subsidiary of RHB Capital
Berhad.
Singapore
This report is published and distributed in Singapore by DMG & Partners Research Pte Ltd (Reg. No. 200808705N), a wholly-owned subsidiary of DMG &
Partners Securities Pte Ltd, a joint venture between Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Gr oup) and OSK Investment
Bank Berhad, Malaysia which have since merged into RHB Investment Bank Berhad (the merged entity is referred to as “RHBIB”, which in turn is a whollyowned subsidiary of RHB Capital Berhad). DMG & Partners Securities Pte Ltd is a Member of the Singapore Exchange Securities T rading Limited. DMG &
Partners Securities Pte Ltd may have received compensation from the company covered in this report for its corporate finance or its dealing activities; this
report is therefore classified as a non-independent report.
As of 4 January 2015, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd do not have proprietary
positions in the securities covered in this report, except for:
a)
As of 4 January 2015, none of the analysts who covered the securities in this report has an interest in such securities, except for:
a)
Special Distribution by RHB
Where the research report is produced by an RHB entity (excluding DMG & Partners Research Pte Ltd) and distributed in Singapore, it is only distributed
to "Institutional Investors", "Expert Investors" or "Accredited Investors" as defined in the Securities and Futures Act, CAP. 289 of Singapore. If you are not
an "Institutional Investor", "Expert Investor" or "Accredited Investor", this research report is not intended for you and you should disregard this research
report in its entirety. In respect of any matters arising from, or in connection with this research report, you are to contact our S ingapore Office, DMG &
Partners Securities Pte Ltd
Hong Kong
This report is published and distributed in Hong Kong by RHB OSK Securities Hong Kong Limited (“RHBSHK”) (formerly known as OSK Securities Hong
Kong Limited), a subsidiary of OSK Investment Bank Berhad, Malaysia which have since merged into RHB Investment Bank Berhad ( the merged entity is
referred to as “RHBIB”), which in turn is a wholly-owned subsidiary of RHB Capital Berhad.
10
RHBSHK, RHBIB and/or other affiliates may beneficially own a total of 1% or more of any class of common equity securities of the subject company.
RHBSHK, RHBIB and/or other affiliates may, within the past 12 months, have received compensation and/or within the next 3 months seek to obtain
compensation for investment banking services from the subject company.
Risk Disclosure Statements
The prices of securities fluctuate, sometimes dramatically. The price of a security may move up or down, and may become valueless. It is as likely that
losses will be incurred rather than profit made as a result of buying and selling securities. Past performance is not a guide to future performance. RHBSHK
does not maintain a predetermined schedule for publication of research and will not necessarily update this report
Indonesia
This report is published and distributed in Indonesia by PT RHB OSK Securities Indonesia (formerly known as PT OSK Nusadana S ecurities Indonesia), a
subsidiary of OSK Investment Bank Berhad, Malaysia, which have since merged into RHB Investment Bank Berhad, which in turn is a wholly-owned
subsidiary of RHB Capital Berhad.
Thailand
This report is published and distributed in Thailand by RHB OSK Securities (Thailand) PCL (formerly known as OSK Securities (Thailand) PCL), a
subsidiary of OSK Investment Bank Berhad, Malaysia, which have since merged into RHB Investment Bank Berhad, which in turn is a wholly-owned
subsidiary of RHB Capital Berhad.
Other Jurisdictions
In any other jurisdictions, this report is intended to be distributed to qualified, accredited and professional investors, in compliance with the law and
regulations of the jurisdictions.
DMG & Partners Research Guide to Investment Ratings
Kuala Lumpur
Hong Kong
Singapore
Buy: Share price may exceed 10% over the next 12 months
Trading Buy:Malaysia
Share price
may exceed 15% over theRHB
nextOSK
3 months,
however longer-term outlook remains uncertain
Research Office
Securities Hong Kong Ltd. (formerly known
DMG & Partners
Neutral: Share
mayInstitute
fall within
months
as12
OSK
Securities
Securities Pte. Ltd.
RHB price
Research
Sdn the
Bhdrange of +/- 10% over the next
Take Profit:
Target
price One,
has been
attained. Look to accumulate at lower
Honglevels
Kong Ltd.)
Level
11, Tower
RHB Centre
10 Collyer Quay
th
Sell: Share price may
byRazak
more than 10% over the next 12 months
Jalanfall
Tun
12 Floor
#09-08 Ocean Financial Centre
Lumpur
World-Wide House
Singapore 049315
Not Rated: Stock isKuala
not within
regular research coverage
Malaysia
Tel : +(60) 3 9280 2185
Fax : +(60) 3 9284 8693
DISCLAIMERS
19 Des Voeux Road
Central, Hong Kong
Tel : +(852) 2525 1118
Fax : +(852) 2810 0908
Tel : +(65) 6533 1818
Fax : +(65) 6532 6211
Phnom
Penh
This research is issuedJakarta
by DMG & Partners Research Pte Ltd and it is forShanghai
general distribution only. It does not have any regard
to the
specific investment
objectives, financial situation and particular needs of any specific recipient of this research report. You should independen tly evaluate particular
PT RHB OSK and
Securities
(formerlyfinancial
known as
RHB
OSK (China)
Advisory
Ltd. into any
RHBtransaction
OSK Indochina
Securities
Limited
(formerly
investments
consultIndonesia
an independent
adviser
before
makingInvestment
any investments
or Co.
entering
in relation
to any
securities
or
PT OSKmentioned
Nusadana in this report.
(formerly known as OSK (China) Investment
known as OSK Indochina Securities Limited)
investment instruments
Securities Indonesia)
Advisory Co. Ltd.)
No. 1-3, Street 271
Plaza CIMB Niaga
Suite 4005, CITIC Square
Sangkat Toeuk Thla, Khan Sen Sok
The information contained
herein has been obtained from sources 1168
we believed
to be reliable but we do not make any representation
or warranty nor
14th Floor
Nanjing West Road
Phnom Penh
accept any responsibility
or liability
as to its accuracy, completeness orShanghai
correctness.
are subject to change
Jl. Jend. Sudirman
Kav.25
20041Opinions and views expressed in this report
Cambodia
without notice.
Jakarta Selatan 12920, Indonesia
China
Tel: +(855) 23 969 161
Tel : +(6221) 2598 6888
Tel : +(8621) 6288 9611
Fax: +(855) 23 969 171
Fax
: +(6221)
2598or6777
Faxof: +(8621)
6288
9633or sell any securities.
This report does
not
constitute
form part of any offer or solicitation
any offer
to buy
Bangkok
DMG & Partners Research Pte Ltd is a wholly-owned subsidiary of DMG & Partners Securities Pte Ltd, a joint venture between OSK Investment Bank
Berhad, Malaysia which have since merged into RHBRHB
Investment
Bank Berhad
(thePCL
merged
entity
is referred to as “RHBIB” which i n turn is a whollyOSK Securities
(Thailand)
(formerly
known
owned subsidiary of RHB Capital Berhad) and Deutsche Asiaas
Pacific
Holdings Pte
Ltd (a PCL)
subsidiary of Deutsche Bank Group). DMG & Partners Securities
OSK Securities
(Thailand)
Pte Ltd is a Member of the Singapore Exchange Securities Trading
Limited.
10th Floor,
Sathorn Square Office Tower
98, North Sathorn Road,Silom
Bangkok 10500
DMG & Partners Securities Pte Ltd and their associates, directors, Bangrak,
and/or employees
may have positions in, and may effect transactions in the securities
Thailand
covered in the report, and may also perform or seek to perform broking and
other corporate finance related services for the c orporations whose securities
Tel: +(66) 2 862report.
9999
are covered in the report. This report is therefore classified as a non-independent
Fax : +(66) 2 108 0999
As of 4 January 2015, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd, do not have proprietary
positions in the subject companies, except for:
a)
As of 4 January 2015, none of the analysts who covered the stock in this report has an interest in the subject companies covered in this report, except for:
a)
DMG & Partners Research Pte. Ltd. (Reg. No. 200808705N)
11