Fundamental
34%/ 211% revenue and operating EBITDA growth in FY18
SPT’s revenue grew 34% yoy to RMB1,472mn in FY18, among whichChina market was up by 45% to RMB923mn. With better utilization,operating EBITDA surged by >200% from RMB79mn in FY17 toRMB247mn in FY18. Net profit increased from RMB6mn to RMB82m,slightly softer than the increase in EBITDA, as the Company recordedRMB23mn one-off reversal of assets impairment as well asRMB31mn exchange gains in FY17.
Catalyst
China/overseas order backlog up by 48%/30% yoy as of Mar 19
FY18 revenue came in below management target of ~RMB1.6bn,which we believe is mainly due to the oil price slump in 4Q18. Giventhat global oil market has stabilized YTD, management is confidenttoward FY19E outlook. As of 15 Mar 2019, China and overseas orderbacklog amounted to RMB1,062mn and RMB753mn, 48%/30%higher than that in the same day last year. Management stated that~80% of these backlog would be recognized within 1 year, and expecttop-line growth in FY19E would not be lower than FY18 level.
Expect margin to further improve in FY19E
Revenue from well completion and drilling segments, which are moresensitive to E&P CAPEX, increased by 87% and 69% in FY18respectively. Segmental profit margin for well completion expandedsignificantly by 16.4ppt to 31.3% （versus an average of 27.1% duringthe good old days FY11-13）， while margin for drilling stayed flat yoy at15.3% （26.5% on average during FY11-13）。 Management stated thatthe one-stop turnkey project of shale gas drilling in Sichuan involvedrelatively high upfront costs, margin of that project would improve inFY19E. Management also see more ASP upside potential in FY19E,as there are supply shortage for some services. Overall, managementexpect profit margin would further improve in FY19E.
Valuation
We expect earnings to double in FY19E; Trading BUY
China market represented 63% of SPT’s revenue in FY18, incomparison to 20-40% for Anton （3337 HK）， Hilong （1623 HK） andHonghua （196 HK）。 Hence we view that SPT has the highestexposure to the energy security and shale gas theme in the PRC. Weexpect SPT to double its earnings in FY19E, supported by 38%revenue growth and 2.6ppt improvement in EBITDA margin （19.3% inFY19E, still below 21-25% in FY11-13）。 Trading at 5.9X FY19E PERversus a median of 14X since its listing, we expect further re-rating.