1H18 results in line with expectation
1H18 revenue rose 29% YoY to Rmn541mn, of which growth rates indomestic market and overseas were 53% and 5% respectively.
Reported NPAT turnaround from net loss of Rmb35.0mn in 1H17 toRmb19.7mn, in line with our expectation. All segments made strongEBITDA recovery in 1H18 with well completion turning around fromloss of Rmb21.8mn in 1H17 to Rmb18.8mn. Order backlog at end-July2018 reached Rm1.89bn, up 62% YoY.
Trends to watch
Revenue growth in domestic market to accelerate. Revenuegenerated from domestic market accounted for 60% in 1H18, up 9pptYoY, driven by strong workload recovery in all 3 segments. Given theshale gas project in Changning, Sichuan, with a total contract value ofabout Rmb500mn, has kicked off since April 18, we expect 2H18revenue growth in domestic market to accelerate.
Well completion margin recovery to stand out. We saw orders ofwell completion tools and services for three-ultra （depth,temperature and pressure） gas wells pop up in Tarim, Sichuan andTurkmenistan recently, driving significant margin recovery for thesegment. SPT enjoys leadership in three-ultra well completion marketin China, especially in Tarim. We expect this would be a major profitdriver for SPT, given PetroChina has made its oath to significantlyraise capex in Tarim in the coming three years.
Negative OCF could be a short-term risk. Operating cash outflow wasRmb91.7mn in 1H18, compared to the Rmb38.0mn inflow a year ago.
We believe this was mainly due to the sharp rise in prepayment,which reflected a cash-strapped condition in the whole value chain.
Earnings forecast
We maintain our earnings forecast.
Valuation and recommendation
SPT is trading at 8x/3x 2018/19e P/E. We maintain TP of HK$1.30 on8x 2019e P/E with 145% upside.
Risks
Oil price volatility; FX risks; AR provision; less-than-expected capex