Anton Oilfield Services | 3337.HK China PutiSchlumberger (SLB US), the largest global oilfield...

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Page 1 of 15 Company Report 22 October 2012 Lewis Pang [email protected] (852) 2235 7847 Trading data 52-Week Range (HK$) 3 Mth Avg Daily Vol (m) No of Shares (m) Market Cap (HK$m) Major Shareholders (%) Auditors Result Due 0.79/2.32 11.8 2,105 4,850 Luo Lin (32.76%) PWC FY12: March Company description Founded in 2002, Anton Oilfield Services is primarily engaged in providing high end services to oil and gas fields, and is one of the leading non government owned services providers in China. Price chart Benefit from gasification, but positives are priced in Rating Neutral Initial Target Price HK$ 2.40 Current price HK$ 2.28 Upside +5% Leading high end oil and gas fields service provider Anton has established a strong position in China in its key service areas, which included: 1. the largest multistage fracturing services provider for horizontal gas wells with >50% share, 2. one of the top players in directional drilling market with >15% share, 3. exclusive tubular helium testing services supplier. Besides, Anton is also the leader in coiled tubing acidizing services in the Iraqi market. Investment from Schlumberger confirmed Antons capability Schlumberger (SLB US), the largest global oilfield services provider, acquired 20% shares of Anton from 2 PE firms and became the 2 nd largest shareholder in July 12. We believe it demonstrated that Antons technical capability and market position is highly appreciated by global giant. Rapid growth fueled by enormous gas demand >70% of Antons domestic sales is attributed to gas-fields. Natural gas demand in China is expected to growth at a >20% CAGR for the next few years, which lead to a rising gas shortage. To ensure energy security, we believe China oil majors would put more emphasis on natural gas E&P, especially for some complex gas fields. For instance, production of tight gas, a type of unconventional gas, is expected to record a CAGR of 18% during 2011-15. Shale gas an area with explosive growth potential Shale gas was proven to be an economical energy source in US, which experienced a 48% production CAGR during 2006-10. Chinas development of shale gas is started in 2011, with Anton being the multistage fracturing services provider for the 1 st shale gas well in China. According to the 12 th Five-Year-Plan for Shale gas issued by NDRC, annual production of shale gas is targeted to reach 6.5 bcm in 2015 and 60-100 bcm in 2020. Wait for a better entry point, initiate with NEUTRAL We find Anton a quality player in the high end onshore oil and gas fields service industry. However, Anton is already trading at 12X FY13E PER, in-line with the average level of the well-established global peers. We initiate coverage on Anton with NEUTRAL, with a target price of HK$2.40, based on 13X FY13E PER. We believe market is too enthusiastic toward shale gas development in China, but it is not expected to bring meaningful contribution to Anton in the next 2-3 years. We advise investors to wait for a better entry point. RMB million FY10A FY11A FY12E FY13E FY14E Revenue 951 1259 1,978 2,639 3,446 Operating profit 145 175 341 472 619 Net Profit 117 77 226 317 420 Consensus NP N/A N/A 212 284 375 EPS (RMB) 0.056 0.037 0.106 0.149 0.198 P/E (x) 33.5 51.2 17.6 12.5 9.4 ROE (%) 7.1 4.4 11.7 14.1 15.9 ROA (%) 5.3 3.1 7.5 8.8 9.7 Sources: Bloomberg, CIRL estimates Anton Oilfield Services | 3337.HK China Puti

Transcript of Anton Oilfield Services | 3337.HK China PutiSchlumberger (SLB US), the largest global oilfield...

Page 1: Anton Oilfield Services | 3337.HK China PutiSchlumberger (SLB US), the largest global oilfield services provider with a market cap of ~US$100bn, acquired 20% shares of Anton from 2

Page 1 of 15

Company Report

22 October 2012

Lewis Pang

[email protected]

(852) 2235 7847

Trading data

52-Week Range (HK$)

3 Mth Avg Daily Vol (m)

No of Shares (m)

Market Cap (HK$m)

Major Shareholders (%)

Auditors

Result Due

0.79/2.32

11.8

2,105

4,850

Luo Lin (32.76%)

PWC

FY12: March Company description

Founded in 2002, Anton Oilfield Services is

primarily engaged in providing high end services

to oil and gas fields, and is one of the leading non

government owned services providers in China.

Price chart

Benefit from “gasification”, but positives are priced in

Rating Neutral Initial

Target Price HK$ 2.40

Current price

HK$ 2.28 Upside +5%

Leading high end oil and gas fields service provider

Anton has established a strong position in China in its key service areas, which included: 1. the largest multistage fracturing services

provider for horizontal gas wells with >50% share, 2. one of the top players in directional drilling market with >15% share, 3. exclusive

tubular helium testing services supplier. Besides, Anton is also the leader in coiled tubing acidizing services in the Iraqi market.

Investment from Schlumberger confirmed Anton’s capability

Schlumberger (SLB US), the largest global oilfield services provider, acquired 20% shares of Anton from 2 PE firms and became the 2

nd

largest shareholder in July 12. We believe it demonstrated that Anton’s technical capability and market position is highly

appreciated by global giant.

Rapid growth fueled by enormous gas demand >70% of Anton’s domestic sales is attributed to gas-fields. Natural

gas demand in China is expected to growth at a >20% CAGR for the next few years, which lead to a rising gas shortage. To ensure

energy security, we believe China oil majors would put more emphasis on natural gas E&P, especially for some complex gas

fields. For instance, production of tight gas, a type of unconventional gas, is expected to record a CAGR of 18% during 2011-15.

Shale gas – an area with explosive growth potential Shale gas was proven to be an economical energy source in US,

which experienced a 48% production CAGR during 2006-10. China’s development of shale gas is started in 2011, with Anton

being the multistage fracturing services provider for the 1st shale gas

well in China. According to the 12th Five-Year-Plan for Shale gas

issued by NDRC, annual production of shale gas is targeted to reach 6.5 bcm in 2015 and 60-100 bcm in 2020.

Wait for a better entry point, initiate with NEUTRAL

We find Anton a quality player in the high end onshore oil and gas fields service industry. However, Anton is already trading at 12X

FY13E PER, in-line with the average level of the well-established global peers. We initiate coverage on Anton with NEUTRAL, with a

target price of HK$2.40, based on 13X FY13E PER. We believe market is too enthusiastic toward shale gas development in China,

but it is not expected to bring meaningful contribution to Anton in the next 2-3 years. We advise investors to wait for a better entry point.

RMB million FY10A FY11A FY12E FY13E FY14E

Revenue 951 1259 1,978 2,639 3,446

Operating profit 145 175 341 472 619

Net Profit 117 77 226 317 420

Consensus NP N/A N/A 212 284 375

EPS (RMB) 0.056 0.037 0.106 0.149 0.198

P/E (x) 33.5 51.2 17.6 12.5 9.4

ROE (%) 7.1 4.4 11.7 14.1 15.9

ROA (%) 5.3 3.1 7.5 8.8 9.7

Sources: Bloomberg, CIRL estimates

Anton Oilfield Services | 3337.HK

China Puti

China Puti

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Leading high end oil and gas fields service provider

Focusing on the high end onshore services market

Oil and gas services industry is a highly segregated industry with lots of players focusing

on various areas. In China, the regular services market, which is commonly being

regarded as the low end market, is dominated by the affiliates of the 3 oil majors, i.e.

PetroChina (857 HK), CNOOC (883 HK) and Sinopec (386 HK). The affiliates of the 3

Chinese NOC capture >80% of the oil and gas services industry.

On the other hand, Anton is focusing on the high end onshore services market. In

comparison to low end services which is generally provided to conventional vertical

wells, high end services is applied to complex oil and gas wells including horizontal

wells, deep zone wells and low permeability wells. Since the primary target of the oil

majors is to secure energy resources all over the world, developing the capability in high

end oil and gas services is not their first priority. Major competitors in the high end

market include global peers such as Schlumberger, Halliburton and Baker Hughes.

Anton’s managements have a deep understanding of China market

Mr. Luo, chairman of Anton, has worked as senior management of the subsidiary of

Sinopec before establishing Anton in 2002. Leveraged on his expertise in China market

and the established relationship with the NOC, Anton has graudally established a strong

position in some of the key high end service areas.

Leading position in key service areas

In China, Anton is 1. the largest multistage fracturing services provider for horizontal gas

wells with >50% share, 2. one of the top players in directional drilling market with >15%

share, and 3. the exclusive tubular helium testing services supplier. In overseas market,

Anton is 4. the leader in coiled tubing acidizing services in Iraq. These 4 areas

contributed 47% of Anton’s sales in 1H12.

Exhibit 1: Anton has established a leading position in its key service areas

Source: Anton, CIRL

Services area Brief descriptionRevenue contribution

in 1H12

Multistage Fracturing

A technique to break down the rock layers

through pressurized fluid to release oil and gas

for extraction

Largest services provider for horizontal

gas wells with >50% market share in

China

18%

Directional Drilling

A practice to drill along the pre-set path to

enhance the oil and gas recovery rate by

reaching the best position

One of the top players with >15%

market share in China10%

Tubular Helium Testing

A test for tubing threaded connector by using

helium and nitrogen to prevent pipe strings from

gas leaking

Exclusive services supplier in China 7%

Coiled tubing

An operation which inserts continuous small-

sized coiled tubing into the wells to carry out

various development jobs

Leader in coiled tubing acidizing

services in the Iraqi market13%

Market position

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Exhibit 2: Multistage fracturing Exhibit 3: Directional Drilling

Break down the rock underground to release resources

Drill alone a pre-set path

3

Exhibit 4: Tubular Helium Testing Exhibit 5: Coiled tubing

A test to prevent gas leakage of tubular connection

Insert a small tubing into the well for various operations

Source: Internet sources, CIRL 5

Constantly introducing the right technology into China

Although the global peers are generally more advanced technologically, Anton should

be more well-informed about the development plan and geographic features of various

major oil and gas fields in China, which allowed Anton to introduce the right technology

to China at the right time. For instance, seeing the fast growing trend of natural gas E&P,

Anton acted as the first mover to introduce tubular helium testing services into China in

2008. This segment soon became one of Anton’s key services, with revenue recorded a

CAGR of 80% during 2009-11.

New drilling fluid services segment start to contribute in 2012

Going forward, the new drilling fluid services segment could become another growth

driver of Anton. Anton has started to develop its drilling fluid services segment since

early 2012. Drilling fluid is used to improve drilling efficiency by maintaining a stable

environment and removing the dirt. In July 12, Anton won the tender for the provision of

drilling fluid services to 8-10 wells in Tarim Basin of Xinjiang, of which most of the jobs

are expected to be completed by the end of 2012. The tender would bring RMB70-90

million revenue to Anton.

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Investment from Schlumberger confirmed Anton’s capability

Schlumberger acquired 20% equity interest of Anton in July 2012

Schlumberger (SLB US), the largest global oilfield services provider with a market cap of

~US$100bn, acquired 20% shares of Anton from 2 PE investors and became the 2nd

largest shareholder of Anton in July 2012. According to Anton, while Schlumberger

would act as a non-operating minority investor and would not send representative to

Anton’s board, the two companies should have more cooperation opportunity going

forward.

Anton has established cooperative relationship with Schlumberger since 2010

Anton and Schlumberger entered into a strategic cooperation agreement in July 2010,

and have collaborated in the area of drilling fluids and well-cementing technology. After

2 years of collaboration, Schlumberger expressed interest to build a stronger

partnership with Anton, therefore Anton introduced the 2 PE investors to Schlumberger,

and Schlumberger acquired a total of 20% shares of Anton from them.

A vote of confidence from winner in the industry

With the largest market cap as well as a better than peers growth in revenue and

earnings, we see Schlumberger a winner in the oil and gas services industry.

Schlumberger is also one of the key players of China’s high end oil services market. The

investment from Schlumberger confirmed Anton’s technical capability and market

position, in our opinion. We believe the alliance could bring positive impact to Anton’s

technological know-how and brand image, especially in overseas market.

Exhibit 6: Schlumberger outperformed other global peers in recent years

Source: Bloomberg, CIRL

Market Cap

(USD bn) Revenue Earnings

Schlumberger SLB US 97.7 15.5% 6.1%

Barker Hughes BHI US 20.8 17.0% -6.4%

Halliburton HAL US 32.8 13.9% 3.9%

Noble Corp NE US 9.4 5.1% -12.7%

Weatherford WFT US 9.8 14.6% -21.8%

Nabors Industry NBR US 4.5 5.2% -24.9%

Core Labs CLB US 5.9 9.5% 17.4%

10.9% -7.4%

2006-2011 CAGRCompany Stock Code

Average of peers:

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Rapid growth fueled by enormous gas demand

Fast growing gas demand in China

>70% of Anton’s domestic sales is attributed to natural gas fields. Due to PRC

government’s strategy to replace oil usage by gas, natural gas consumption in China

grew by a CAGR of 18% during 2006-11. EIA expected that gas consumption in China

would further increase by 2-fold and reach 260 billion cubic meters in 2015, raising

natural gas contribution to energy consumption from ~4.5% in 2011 to 7-8%.

Exhibit 7: Natural gas consumption is expected to double in 2015 from 2011 level

Source: EIA, CIRL

PetroChina and Sinopec plan for a 13% CAGR in gas production during 2011-15

The rapid growing demand has turned China into a net importer of natural gas. In 2011,

>20% of gas consumption in China is fulfilled by import. To ensure energy security,

PetroChina and Sinopec, the two NOCs which accounted for >85% of domestic natural

gas production in 2011, plan to increase their production volume by a CAGR of 13%

during 2011-15. Even under this progressive expansion plan, China gas import

dependence is expected to reach ~30% in 2015.

High end services is required to boost domestic production

We believe most of the low hanging fruit has been picked. To further ramp up production

capacity, the two onshore oil majors need to put more emphasis on the complex fields.

For instance, >12% of PetroChina and Sinopec’s wells are horizontal wells in 2011, up

from ~5% in 2006. Given that the proportion of horizontal wells is >50% in US, we

expect horizontal wells to continue gaining importance in China.

In comparison to traditional vertical wells, horizontal wells are more efficient in extracting

low permeable reserves or reserves located in complicated landscape. Since

development of horizontal wells is more challenging, oil majors need help from high end

service specialists such as Anton.

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Exhibit 8: Horizontal wells are gaining importance in China’s onshore oil and gas fields

Source: PetroChina, Sinopec, CIRL

Unconventional gas including tight gas will take a more important role

The need to raise production will also put unconventional gas into a more important

position. Tight gas is currently the most well-developed type of unconventional gas in

China. It contributed 25% of China natural gas production in 2011, and is expected to

record a CAGR of 18% during 2011-15. Since tight gas is trapped in impermeable

sandstone or limestone formations, multistage fracturing and directional drilling services,

two key service areas of Anton, are required to effectively extract these resources.

Exhibit 9: Production of tight gas is expected to grow by a CAGR of 18% during 2011-15

Source: RIPED of PetroChina, EIA

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Shale gas - an area with explosive growth potential

Shale gas is another potential energy sources

In addition to tight gas, China is now exploring the feasibility of extracting shale gas.

Shale gas is another type of unconventional gas which is trapped in shale deposits.

Shale is generally divided into thin parallel layers and would not disintegrate in water,

making shale gas difficult to extract.

Shale gas was proven to be an economical energy source in U.S.

U.S. is the first country that put shale gas into large scale production. According to

“Annual Energy Outlook 2011” published by EIA, “the combination of horizontal drilling

and hydraulic fracturing technologies has made it possible to produce shale gas

economically, leading to an average annual growth rate of 48 percent over the

2006-2010 period”.

With the rapid ramp up in production volume, contribution of shale gas to total natural

gas production in U.S. increased from <1% in 2000 to 23% in 2010, and would further

go up to >40% in 2035 according to EIA estimation. The development of shale gas

brings two favorable changes to US energy structure: a lower energy dependence level

and an increase proportion of clear energy usage.

Exhibit 10: Shale gas accounted for ~23% of US natural gas production in 2010

US natural gas production by source (TCF)

Source: “Annual Energy Outlook 2011”, EIA

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Shale gas could bring lower energy dependence and more clear energy usage

Thanks to the development of shale gas, U.S. gas import dependence is declined from

15-16% in mid-2000s to 8% in 2011. Besides, proportion of natural gas usage climbed

up from 22-23% to 25.5% in 2011, while usage of petroleum and coal, the two

high-pollution energy sources, is declined from 62-63% to 56%. Encouraged by U.S.’s

experience, China, Canada and some of the EU countries are now actively exploring the

prospect of extracting shale gas.

Exhibit 11: U.S. gas import dependence is declining with the help of shale gas

Source: EIA

Exhibit 12: Natural gas usage in U.S. is on an uptrend

Source: EIA

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China has the largest amount of recoverable shale gas reserves

According to the initial estimation done by EIA, China has the largest amount of

recoverable shale gas reserves among the 15 countries under assessment. This

assessment suggests that China has 36 trillion cubic meters of recoverable shale gas

reserves, significantly higher the 3 tcf proved recoverable conventional gas reserves.

Exhibit 13: China estimated to have 36 trillion cubic meters shale gas reserves

Source: EIA

Anton is the services provider of the 1st

shale gas wells in China

Development of the first two shale gas wells in China has successful completed in 2011,

with Anton acted as the multistage fracturing services provider of one of the wells. We

believe it is a strong evidence of Anton’s technical capability, and we expect Anton to be

heavily involved in the potential shale gas evolution going forward.

PRC targets to achieve 60-100 bcm shale gas production in 2020

According to the 12th Five-Year-Plan for Shale gas issued by NDRC, annual production

of shale gas is targeted to reach 6.5 bcm in 2015 and 60-100 bcm in 2020. As a

comparison, the total domestic natural gas production is 185 bcm in 2011.

We are aware that it is still early day for shale gas development in China, and concerns

such as 1) lack of detailed exploration results, 2) technological and environmental

feasibility and 3) limited gas pipeline coverage in China make it hard to predict the future

of shale gas. However, we are still cautiously positive on the prospect of shale gas in

China, and it could fuel explosive growth for Anton.

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Follows the overseas expansion of Chinese oil majors

Expanding abroad with the Chinese oil majors

Due to energy security concerns, Chinese oil majors have undertaken extensive

investments overseas, especially in the Middle East and Central Asian countries. In

view of this, Anton adopted a follow-up strategy to expand into overseas market by

providing services to the overseas oil and gas fields invested by the Chinese oil majors,

such as the oilfields of PetroChina in Iraq.

Increasing contribution from overseas market

Enjoying a cost advantage and a closer relationship with the Chinese NOC, Anton

recorded substantial growth in overseas market, and contributed 24.5% of Anton’s sales

in 1H12, and has entered into countries including Iraq, Kazakhstan and Turkmenistan.

Exhibit 14: Overseas market contributed >20% of Anton sales in FY11 and 1H12

Source: EIA

Chinese oil majors will continue to stress on overseas expansion

Overseas oil and gas effective production volume of the three oil majors has increased

from 25mn tons in 2005 to 86mn tons in 2011, representing a CAGR of 23%. According

to the expansion plan of the Chinese oil majors, it is expected that their overseas

production volume would continue to grow at a CAGR of >20% during 2011-15. We

believe it would create more opportunities for Anton. Besides, after establishing a closer

relationship with Schlumberger, Anton should now be able to gain more trust from other

overseas oil and gas companies and expand its customer base.

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Financial analyst and valuation

3Q12 operation remains intact, we project 32% revenue CAGR during FY12-14E

Anton’s revenue is increased by 53% yoy to RMB804mn in 1H12.Since Anton has

completed 671 jobs in 3Q12 versus 912 jobs in 1H12, and Q4 is generally the peak

season of oil and gas services industry, we expect a revenue of RMB1.98bn in FY12.

We also project a CAGR of 32% in top-line during FY12-14E, supported by 1. a

13%CAGRof China’s gas production volume while gas wells contribute >70% of Anton’s

domestic sales, 2. an uptrend in per unit gas production cost due to higher complexity

involved, and 3. the progressive expansion plan of Chinese oil majors in overseas

market which target to achieve >20% CAGR in volume during the next few years.

Improvement in operating margin

Anton’s operating margin is improved from 13.9% in FY11 to 21.6% in 1H12. We believe

it is mainly attributed to 1. A stronger pricing power as Anton has established a strong

brand name in high end services market and 2. A better economies of scale. To be

conservative, we project an OPM of 17.2%/17.9%/18.0% during FY12-14E, which is

broadly in line with the average level of the international peers.

We expect a profit of RMB226mn in FY12E, and a CAGR of 36% during FY12-14E

We expect a net profit of RMB226mn in FY12E, surged by 192% yoy. Anton’s net profit

in FY11 is dragged by the operating loss and provision brought by the joint venture–

Northern Heavy Anton, which amounted to RMB46mn in total and is not likely to recur in

FY12E.Besides, with a strong growth momentum in top-line and a slight improvement in

margin, we project a CAGR of 37% of during FY12-14E.

Wait for a better entry point, initiate with NEUTRAL

We find Anton a quality player in the high end onshore oil and gas field service industry.

However, Anton is already trading at 12X FY13E PER, in-line with the average level of

the well-established global peers. In comparison to other international peers, we agree

that Anton is in a better position to capture the fast developing natural gas market in

China. While on the other hand, Anton has a weaker financial strength and shorter track

record, and hence could be more vulnerable in front of economic downturn.

We initiate coverage on Anton with NEUTRAL, with a target price of HK$2.40, based on

13X FY13E PER, a 10% discount to Schlumberger, the largest oil and gas services

provider in the world. We believe the recent strong performance of Anton is partially due

to market’s enthusiasm to shale gas development in China. However, while we agree

that shale gas could have a bright future in China in long term, it is only in an exploring

stage at this moment and is not expected to bring meaningful contribution to Anton

during the next 2-3 years. We advise investors to wait for a better entry point.

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Exhibit 15: Peers comparison

Source: Bloomberg, CIRL

Ticker Mkt cap Price P/E(x) P/B(x)

(HKD mn) (HKD) FY11A FY12E FY13E FY11A FY12E FY13E

Global peers

Schlumberger SLB US 761,090 573.53 19.9 17.5 14.9 3.2 2.8 2.5

Baker Hughes BHI US 152,452 346.83 11.2 12.8 11.5 1.2 1.1 1.0

Halliburton HAL US 251,521 271.11 11.3 11.7 11.2 2.4 2.1 1.8

Weatherford WFT US 79,389 94.55 34.7 12.3 9.0 1.0 0.9 0.8

Average 19.3 13.6 11.7 1.9 1.7 1.5

China Oilfield 2883 HK 81,479 14.08 13.0 11.0 9.7 1.8 1.6 1.4

SPT Energy 1251 HK 2,857 2.14 9.9 8.9 7.1 2.7 2.2 1.9

Honghua 196 HK 5,835 1.81 28.8 9.6 7.9 1.2 1.1 1.0

Hilong 1623 HK 3,294 2.07 8.2 8.0 6.7 1.4 1.2 1.0

Chu Kong Pipe 1938 HK 3,226 3.19 11.5 8.8 6.8 1.2 1.0 0.9

Shengli Oil & Gas 1080 HK 1,761 0.71 15.6 23.7 15.1 0.7 0.7 0.7

Anhui Tianda 839 HK 1,421 1.41 16.7 23.1 11.5 0.5 0.5 0.5

Average 14.8 13.3 9.2 1.4 1.2 1.0

Offshore Oil 600583 CH 26,652 6.85 113.8 39.2 24.1 2.3 2.2 2.1

Jereh Oilfield Service 002353 CH 26,127 56.89 51.1 32.7 23.5 8.2 6.3 5.2

HBP 002554 CH 4,795 15.79 41.8 31.5 24.8 3.3 3.2 2.9

Gi Technologies 300309 CH 5,156 23.73 32.0 29.8 21.9 10.4 N/A N/A

Tong Oil Tools 300164 CH 3,396 21.44 36.0 26.5 20.9 2.4 2.3 2.1

LandOcean Energy 300157 CH 5,002 27.09 48.9 29.6 21.2 2.4 N/A N/A

Sino Geophysical 300191 CH 3,323 20.77 33.5 36.8 28.6 2.5 2.4 2.3

Sichuan Renzhi 002629 CH 2,834 24.77 25.7 24.8 19.5 3.3 N/A N/A

Kingdream Pub 000852 CH 8,608 21.50 68.6 65.1 53.2 6.6 6.1 5.4

SK Equipment 002278 CH 4,054 15.50 41.5 39.1 33.3 2.8 2.7 2.6

Average 51.0 32.3 23.6 4.5 3.3 2.9

Anton 3337 HK 4,850 2.28 51.2 17.6 12.5 2.3 2.1 1.8

Energy equipement and services - H share

Energy equipement and services - A share

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Exhibit 16: Financial statement

Source: Bloomberg, CIRL

Income statement Cash flow

Year to Dec (RMB mn) FY10A FY11A FY12E FY13E FY14E Year to Dec (RMB mn) FY10A FY11A FY12E FY13E FY14E

Revenue 951 1,259 1,978 2,639 3,446 Pre-tax profit 142 113 315 442 586

Gross profit (reported) 432 551 940 1,260 1,654 Taxes paid (10) (28) (46) (74) (99)

EBITDA 196 232 418 574 745 Depreciation 51 59 77 103 126

Depreciation (51) (59) (77) (103) (126) Associates 0 46 0 0 0

EBIT 145 173 341 472 619 CFO bef. WC change 183 189 346 470 612

Net interest income (exp.) (3) (16) (26) (30) (33) Change in working cap (133) (5) (148) (119) (187)

Associates (0) (14) 0 0 0 Cashflow from operation 50 184 198 352 425

Exceptionals/others 1 (30) 0 0 0 CAPEX (173) (202) (405) (330) (360)

Profit before tax 142 113 315 442 586 Free cash flow (122) (18) (207) 22 65

Tax expenses (16) (21) (58) (82) (109) Dividends (18) (39) (36) (79) (111)

Minority interest (9) (14) (31) (43) (57) Balance sheet adj. 1 60 (30) 36 41

Net profit 117 77 226 317 420 Shares issued 0 0 0 0 0

Dividends (39) (36) (79) (111) (147) Others 0 0 0 0 0

EPS (RMB) 0.056 0.036 0.106 0.149 0.198 Net cash flow (139) 3 (273) (21) (5)

Net cash (debt) start 294 154 158 (115) (136)

Balance sheet Net cash (debt) at year-end 154 158 (115) (136) (141)

Year to Dec (RMB mn) FY10A FY11A FY12E FY13E FY14E

Cash & equiv 339 478 300 350 400 Ratios

Trade receivables 672 671 831 1,055 1,309 Year to Dec FY10A FY11A FY12E FY13E FY14E

Other receivables 70 121 218 211 276 Growth rate (%)

Inventories 265 271 367 474 598 Revenue 37.8 32.4 57.2 33.4 30.6

Other current assets 0 0 0 0 0 EBITDA 186.5 18.4 80.5 37.3 29.7

Fixed assets 445 570 839 1,086 1,340 EBIT 329.2 19.2 97.5 38.4 31.2

Intangible assets 346 365 423 403 384 Net profit 264.3 (33.7) 191.8 40.4 32.6

Investment, associates etc 53 22 20 20 20 Fully diluted EPS 264.1 (34.5) 191.3 40.4 32.6

Total assets 2,191 2,498 2,998 3,600 4,327 Margins (%)

Gross margin (reported) 45.5 43.8 47.5 47.8 48.0

Account payables 218 258 395 538 717 EBITDA 20.6 18.4 21.1 21.8 21.6

Other payables 113 135 203 268 347 EBIT 15.2 13.7 17.2 17.9 18.0

Short-term debt 185 320 116 187 242 Net margin 12.3 6.1 11.4 12.0 12.2

Other current liabs 22 29 38 46 55 Other ratios

Long-term debts 0 0 299 299 299 ROE (%) 7.1 4.4 11.7 14.1 15.9

Deferred tax and others 2 1 3 3 3 ROA (%) 5.3 3.1 7.5 8.8 9.7

Other long-term liabs 0 15 18 20 22 Net gearing (%) N/A N/A 6.0 6.1 5.4

Total liabilities 540 758 1,071 1,360 1,684 Interest coverage (x) 53.7 10.7 13.0 15.8 18.7

Receivables days 258.0 194.5 153.3 146.0 138.7

Share capital 197 198 199 199 199 Payables days 153.7 133.0 138.7 142.4 146.0

Reserves 1,417 1,468 1,622 1,892 2,238 Inventory days 186.8 140.0 129.0 125.4 121.7

Shareholders' equity 1,614 1,666 1,821 2,091 2,436 Effective tax rate (%) 11.5 18.5 18.5 18.5 18.5

Minorities 37 74 106 149 206

Total equity 1,651 1,740 1,927 2,240 2,642

Net cash (debt) 154 158 (115) (136) (141)

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Page 14 of 15

Risk factors

Decline in energy price

A sharp decline in energy price would hurt the E&P spending of oil companies. For

instance, the weak performance of global oil price during 2H08 has led to a >10%

decline of PetroChina and Sinopec’s E&P spending in 2009.

Unfavorable policy on natural gas development in China

Growth prospect of Anton is highly correlated with the expansion pace of gas production

in China. If policy of China becomes less supportive to natural gas production, Chinese

oil majors may reduce investment on natural gas segment.

Intensified competition

Anton’s competitors are mainly large scale players such as well-established global

companies as well as the affiliates of the Chinese oil majors. Although Anton has

established a strong position in some service areas, a more intensified competition

could hurt Anton’s market share and profitability.

Lengthened cash flow cycle

Although receivable days of Anton is improved in 1H12, bargaining power of Anton

could be weak in comparison to its major customers, PetroChina and Sinopec. Any

delay of their payment could put pressure Anton’s cash flow.

Page 15: Anton Oilfield Services | 3337.HK China PutiSchlumberger (SLB US), the largest global oilfield services provider with a market cap of ~US$100bn, acquired 20% shares of Anton from 2

Page 15 of 15

Rating Policy

Rating Definition

Stock Rating Buy Outperform HSI by 15%

Neutral Between -15% ~ 15% of the HSI

Sell Underperform HSI by -15%

Sector Rating Accumulate Outperform HSI by 10%

Neutral Between -10% ~ 10% of the HSI

Reduce Underperform HSI by -10%

Analysts List

Antony Cheng Research Director (852) 2235 7127 [email protected]

Hayman Chiu Senior Research Analyst (852) 2235 7677 [email protected]

Kenneth Li Senior Research Analyst (852) 2235 7619 [email protected]

Lewis Pang Research Analyst (852) 2235 7847 [email protected]

Susanna Chui Research Analyst (852) 2235 7131 [email protected]

Analyst Certification

I, Lewis Pang hereby certify that all of the views expressed in this report accurately reflect my personal views about the

subject company or companies and its or their securities. I also certify that no part of my compensation was / were, is /

are or will be directly or indirectly, related to the specific recommendations or views expressed in this report / note.

Disclaimer

This report has been prepared by the Cinda International Research Limited. Although the information and opinions

contained in this report have been compiled or arrived at from sources believed to be reliable, Cinda International

cannot and does not warrant the accuracy or completeness of any such information and analysis. The report should not

be regarded by recipients as a substitute for the exercise of their own judgment. Recipients should understand and

comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers

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