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Company Update, 20 January 2015
Anton Oilfield (3337 HK)
Sell (Maintained)
Energy & Petrochemicals - Oil & Gas Services
Market Cap: USD457m
Target Price:
Price:
HKD0.95
HKD1.60
Macro
Risks
Disappointment Continues
Growth
Value
Anton Oilfield Services Group (3337 HK)
Relative to Hang Seng Index (RHS)
132
5.90
112
4.90
92
3.90
72
2.90
52
1.90
32
0.90
180
160
140
120
100
80
60
40
20
12
Nov-14
Sep-14
Jul-14
May-14
Mar-14
Avg Turnover (HKD/USD)
56.9m/7.30m
Cons. Upside (%)
9.4
Upside (%)
-40.6
52-wk Price low/high (HKD)

1.41 - 6.02
Free float (%)
50
Share outstanding (m)
2,212
Shareholders (%)
Pro Development Holdings
Corp
Schlumberger NV
30.6
19.1
YTD
1m
3m
6m
12m
(4.2)
(9.1)
(27.3)
(65.8)
(73.2)
(78.5)
(7.4)

Likely to incur net loss in 2014. Anton Oilfield Services Group (Anton)
expects its FY14 revenue to decline by over 20%, and its FY14 profit to
fall by over 140%, which translates into a net loss. The company
attributes the net loss to sluggish domestic and international markets
amid low oil prices, which led to cancellation of projects and downward
pricing pressure. This is much worse than our revenue forecast of +6%
and net profit forecast of CNY62m for FY14.
Orders backlog cut amid cancellation of orders. As major clients
cancelled and downsized projects, Anton reduced its orders backlog in
3Q14 by CNY200m to CNY1,956m. Orders backlog at the end of 2014
stood at CNY1,707m, down 13% QoQ. New orders won in 4Q14
amounted to only CNY458m, down 30% QoQ, mainly due to cancellation
and postponement of clients’ projects.
Strategy update offers no assurance on earnings. Anton depicted a
gloomy picture for 2015 as sales and margins may not improve amid
difficult market conditions. Anton will continue its reduction in workforce
in 2015 after a 10% cut in 2014 to control cost.
Bumpy road ahead. Anton has lowered its guidance twice in less than
three months. We think Anton’s business may continue to be under
pressure in 2015 amid low oil prices. We cut our earnings forecasts for
FY14 and FY15 to negative, and FY16 by 97%.
Maintain SELL with a lower TP of HKD0.95. Given the high volatility in
Anton’s earnings, we change our TP to P/BV from P/E-based. Our lower
TP of HKD0.95 (vs HKD1.30) is based on 0.8x FY15F P/BV, 1SD below
its forward P/BV mean. We maintain our SELL call in light of Anton’s net
loss for 2014 and the tough FY15 operating outlook amid low oil prices.
Forecasts and Valuations
Share Performance (%)
Relative


Source: Bloomberg
Absolute
0
0
.1
0
0
Anton released a series of announcements during the weekend, .
0
including a profit warning, 2015 strategy update and 4Q14 operational 0
update. Maintain SELL with a lower TP of HKD0.95 (0.8x FY15F P/BV, 0
40.6% downside). The profit warning came in worse than we had
expected amid cancellation of orders by clients. We cut our earnings
forecasts for FY14 and FY15 to negative, and FY16 by 97%.

Jan-14
Vol m
Price Close
6.90
(14.4)
(33.1)
(69.6)
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
2,005
2,534
1,923
2,353
2,824
Reported net profit (CNYm)
303
383
(162)
(3)
20
Recurring net profit (CNYm)
295
369
(171)
(23)
287.7
25.1
(146.2)
(86.6)
Recurring EPS (CNY)
0.14
0.17
(0.08)
(0.01)
0.00
DPS (CNY)
0.05
0.06
0.00
0.00
0.00
9
7
1.39
1.21
1.38
1.35
1.33
Total turnover (CNYm)
Recurring net profit growth (%)
Shariah compliant


2

.
2
0
.
2




Recurring P/E (x)
na
na
5
na
513
Charles Zhang +852 2103 5842
P/B (x)
charles.zhang@rhbgroup.com
P/CF (x)
7.8
7.3
7.1
26.2
15.2
Dividend Yield (%)
3.6
4.3
0.0
0.0
0.0
EV/EBITDA (x)
5.9
5.1
20.2
10.5
9.6
16.6
18.0
(7.5)
(0.1)
1.0
24.2
50.5
69.9
87.9
(261.7)
(111.3)
(98.1)
Return on average equity (%)
Net debt to equity (%)
Our vs consensus EPS (adjusted) (%)
net cash
Source: Company data, RHB
See important disclosures at the end of this report
Powered by EFA
TM
Platform
1
Anton Oilfield (3337 HK)
20 January 2015
Figure 1: New orders and orders backlog
(CNYm)
4Q13
New orders
1Q14
2Q14
3Q14
4Q14
312.5
1,198.6
693.4
624.1
457.6
-
-
-
-
46.4%
QoQ
-
283.6%
-42.1%
-10.0%
-26.7%
% of total
100.0%
100.0%
100.0%
100.0%
100.0%
213.3
YoY
- Domestic
-
628.2
424.6
272.6
YoY
-
-
-
-
-
QoQ
-
-
-32.4%
-35.8%
-21.8%
% of total -
52.4%
61.2%
43.7%
46.6%
-
570.4
268.9
351.5
244.3
YoY
-
-
-
-
-
QoQ
-
-
-52.9%
30.7%
-30.5%
47.6%
38.8%
56.3%
53.4%
1,707.4
- Overseas
% of total Order backlog
1,003.4
1,932.2
1,814.9
1,955.5
YoY
-
-
-
-
70.2%
QoQ
-
92.6%
-6.1%
7.7%
-12.7%
% of total
100.0%
100.0%
100.0%
100.0%
100.0%
722.8
1,207.4
1,064.2
1,060.0
588.6
-
-
-
-
-18.6%
QoQ
-
67.0%
-11.9%
-0.4%
-44.5%
% of total
72.0%
62.5%
58.6%
54.2%
34.5%
280.6
724.8
750.8
895.5
1,118.8
- Domestic
YoY
- Overseas
YoY
-
-
-
-
298.7%
QoQ
-
158.3%
3.6%
19.3%
24.9%
% of total
28.0%
37.5%
41.4%
45.8%
65.5%
Source: Company data, RHB
Figure 2: Changes in forecasts (CNYm)
31 Dec FYE
FY 14
New
FY 14
Old
Drilling
Well completion
Down- hole operation
Tubular services
Tota l re ve nue
COGS
G ross profit
GPM
460
466
790
208
1, 9 2 3
(1,327)
596
31.0%
637
630
1,114
302
2,683
(1,717)
966
36.0%
Sales tax & surcharges
Selling expenses
Administrative expenses
R&D
O pe ra ting e xpe nse s
Opex as % of revenue
Other gain, net
O pe ra ting profit
Operating margin
(38)
(231)
(279)
(48)
(5 9 6 )
31.0%
20
20
1.0%
(35)
(268)
(349)
(54)
(7 0 5 )
26.3%
20
280
10.4%
Interest income
Finance cost
Share of associates' profits
EBT
EBT margin
19
(210)
(17 0 )
- 8.9%
19
(200)
10 0
3.7%
0
0.0%
(28)
28.0%
MI
Ne t profit - re porte d
NPM (reported)
9
(16 2 )
- 8.4%
(4)
68
7.9%
Ne t profit - re c urring
NPM (recurring)
(17 1)
- 8.9%
62
2.3%
Income tax
Effective tax rate
EP S - re c urring
Source: RHB
(0 . 0 8 )
0.03
See important disclosures at the end of this report
FY 15
New
FY 15
Old
FY 16
New
FY 16
Old
(27.8)
(26.1)
(29.1)
(31.3)
(2 8 . 3 )
(22.7)
(3 8 . 3 )
529
536
1,050
239
2,353
(1,647)
706
30.0%
764
756
1,537
363
3,420
(2,223)
1, 19 7
35.0%
(30.8)
(29.2)
(31.7)
(34.1)
(3 1. 2 )
(25.9)
(4 1. 0 )
634
643
1,260
287
2,824
(1,977)
847
30.0%
917
907
1,845
435
4 , 10 4
(2,708)
1, 3 9 5
34.0%
(30.8)
(29.2)
(31.7)
(34.1)
(3 1. 2 )
(27.0)
(3 9 . 3 )
10.4
(14.0)
(20.1)
(10.4)
(15.5)
(31)
(188)
(259)
(59)
(5 3 6 )
22.8%
20
19 0
8.1%
(44)
(274)
(393)
(68)
(7 8 0 )
22.8%
20
437
12.8%
(31.2)
(31.2)
(34.2)
(14.0)
(31.2)
(37)
(226)
(311)
(71)
(6 4 4 )
22.8%
20
223
7.9%
(53)
(328)
(472)
(82)
(9 3 6 )
22.8%
20
480
11.7%
(31.2)
(31.2)
(34.2)
(14.0)
(31.2)
11
(204)
(3 )
- 0.1%
11
(194)
255
7.5%
5.2
9
(204)
29
1.0%
9
(194)
295
7.2%
5.2
0
0.0%
(71)
28.0%
N/A
(8)
28.0%
(83)
28.0%
(90.1)
0
(3 )
- 0.1%
(9)
17 4
5.1%
N/A
N/A
(1)
20
0.7%
(11)
202
4.9%
(90.1)
(90.1)
N/A
(2 3 )
- 1.0%
16 0
4.7%
N/A
5
0.2%
18 7
4.6%
(97.1)
N/A
(0 . 0 1)
Chg %
(92.8)
4.9
N/A
N/A
(337.1)
N/A
0.07
Chg %
(56.7)
N/A
N/A
0.00
0.09
Chg %
(53.4)
(90.1)
(97.1)
2
Anton Oilfield (3337 HK)
20 January 2015
Figure 3: Forward P/BV band
8.00
7.00
+2SD = 6.5x
6.00
Share Price (HKD)
5.00
+1SD = 4.6x
4.00
3.00
Mean = 2.7x
2.00
1.00
-1SD = 0.8x
0.00
Jan-10
-1.00
Jul-10 Jan-11
Jul-11 Jan-12
Jul-12 Jan-13
Jul-13 Jan-14
Jul-14 Jan-15
-2SD = -1.1x
-2.00
Source: Bloomberg, RHB
Figure 4: Peer comparison
Com pany
Ticker
Anton Oilfield
3337 HK
Price Mkt cap
(USDm )
1.60
457
3-m th
P/E
P/E
P/E
avg t/o FY13 FY14 FY15
(USDm )
(x)
(x)
(x)
7.5
7.2
10.1
N/A
EPS 3-Yr EPS PEG
FY15 Cagr (%)
(x)
YoY%
N/A
N/A
9.8
(6.8)
10.5
6.8
5.9
10.7
10.7
21.5
14.7
27.8
(6.3)
6.9
HSI
23,738
HSCEI
11,476
8.0
7.6
CSI300
3,355
14.9
12.2
12.8
11.1
12.5
Adjusted sector avg*
10.8
EPS
FY14
YoY%
N/A
Div yld Div yld P/BV P/BV
Rev
FY13
FY14 FY13 FY14
FY13
(%)
(%)
(x)
(x) (USDm )
407
GPM
Net
FY13 m argin
(%)
FY13
(%)
44.31
15.1
ROE
FY13
(%)
ROE
FY14
(%)
N/A
N/A
4.4
0.0
1.3
1.7
11.4
(7.5)
5.5
2.0
3.8
3.7
1.3
1.2
13.3
11.4
7.7
1.0
3.8
4.2
1.2
1.1
15.1
13.9
N/A
N/A
1.7
2.4
2.2
1.8
14.5
14.8
0.9
3.0
2.4
1.4
1.3
18.7
10.9
15.8
13.0
16.4
HK listed oil & gas services
Spt Energy Group 1251 HK
1.34
265
2.0
5.5
5.4
4.6
1.0
17.6
12.8
0.4
4.8
4.4
0.9
0.8
386
N/A
12.5
16.9
Petro-King
2178 HK
1.07
170
0.3
5.5
12.6
10.1
(56.5)
24.7
(13.6)
N/A
4.6
3.1
0.5
0.5
137
N/A
18.5
12.1
3.1
China Oilfield-H
2883 HK
13.34
11,870
41.1
7.2
6.5
7.1
10.1
(8.8)
1.0
6.8
4.0
4.5
1.2
1.1
4,399
N/A
24.5
20.4
18.5
6.0
8.2
7.3
(15.1)
11.2
0.1
3.6
4.5
4.0
0.9
0.8
N/A
18.5
16.5
12.7
Average
US oil & gas services
Schlumberger Ltd SLB US
81.33 104,655
904.4
19.4
18.3
17.3
5.7
6.0
20.8
0.9
2.0
2.1
2.7
2.5
48,580
23.0
11.2
14.0
14.3
Halliburton Co
39.13
33,161 1,023.8
16.5
9.9
13.4
66.1
(25.9)
10.7
0.9
1.6
1.6
2.1
2.0
29,402
15.2
7.2
24.0
22.4
Baker Hughes Inc BHI US
56.56
24,468
504.0
22.9
14.7
20.1
56.1
(26.9)
9.4
1.6
1.1
1.1
1.4
1.3
22,364
17.0
4.9
7.3
9.2
Weatherford Inte WFT US
10.34
8,001
157.7
N/A
10.2
14.7
N/A
(30.5)
(224.1)
N/A
N/A
0.0
1.0
1.0
15,263
19.4
(2.3)
(4.6)
7.0
19.6
13.3
16.4
42.6
(19.3)
(45.8)
1.1
1.6
1.2
1.8
1.7
18.7
5.3
10.2
13.2
HAL US
Average
A-share oil & gas services
Yantai Jereh-A
002353 CH 33.98
5,244
72.9
30.9
22.3
15.9
38.5
40.4
38.6
0.6
0.5
0.7
4.2
3.8
590
43.26
26.84
22.76
22.74
China Oil Hbp-A
002554 CH 11.03
808
15.4
48.0
35.2
25.2
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 19.20
671
9.5
56.5
42.0
29.9
34.4
40.7
37.0
1.1
0.5
0.4
3.4
3.2
37
55.92
31.50
6.05
7.57
45.1
33.2
23.6
36.3
40.3
36.4
0.9
0.5
0.8
3.8
3.5
42.2
23.1
12.6
13.5
Average
Oil equipm ents
Hilong Holding
1623 HK
2.39
523
2.8
9.3
8.1
7.1
13.8
15.3
14.5
0.6
3.2
3.7
1.2
1.1
394
40.29
14.05
16.30
14.25
Honghua Group
196 HK
1.00
418
1.8
4.7
6.6
5.9
(28.2)
12.3
(2.8)
N/A
6.0
4.4
0.5
0.5
1,294
23.68
6.68
10.73
8.03
7.0
7.4
6.5
(7.2)
13.8
5.8
0.6
4.6
4.0
0.9
0.8
32.0
10.4
13.5
11.1
Average
* 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
3
Anton Oilfield (3337 HK)
20 January 2015
Financial Exhibits
Profit & Loss (CNYm)
Dec-12
Dec-13
Dec-14F
Dec-15F
Total turnover
2,005
2,534
1,923
2,353
2,824
Cost of sales
(1,103)
(1,411)
(1,327)
(1,647)
(1,977)
Gross profit
901
1,123
Dec-16F
596
706
847
Gen & admin expenses
(260)
(300)
(279)
(259)
(311)
Selling expenses
(154)
(173)
(231)
(188)
(226)
Other operating costs
(99)
(97)
(86)
(89)
(107)
Operating profit
387
552
0
170
203
Operating EBITDA
481
675
198
422
505
Depreciation of fixed assets
(73)
(107)
(186)
(242)
(291)
Amortisation of intangible assets
(21)
(16)
(11)
(11)
(11)
Operating EBIT
387
552
0
170
203
Net income from investments
-
(10)
-
-
Other recurring income
-
11
20
20
20
Interest income
2
1
19
11
Interest expense
(31)
(71)
(199)
(204)
Other non-recurring income
(2)
(3)
(11)
Pre-tax profit
367
490
Taxation
(50)
(87)
Minority interests
(15)
(21)
Profit after tax & minorities
303
383
(162)
Reported net profit
303
383
Recurring net profit
295
369
Dec-12
387
-
(170)
-
20
9
(204)
-
(3)
29
9
(8)
0
(1)
(3)
20
(162)
(3)
20
(171)
(23)
5
Dec-13
Dec-14F
Dec-15F
Dec-16F
552
0
170
203
93
122
198
252
301
(133)
(191)
367
(142)
(137)
Source: Company data, RHB
Cash flow (CNYm)
Operating profit
Depreciation & amortisation
Change in working capital
Other operating cash flow
Operating cash flow
Interest received
Interest paid
64
6
9
20
20
412
490
573
300
387
2
1
19
11
(15)
(42)
(199)
(204)
9
(204)
Tax paid
(49)
(71)
-
-
Cash flow from operations
350
379
394
107
185
(232)
(717)
(750)
(600)
(600)
(41)
(92)
(0)
(273)
(809)
(750)
Capex
Other investing cash flow
Cash flow from investing activities
Dividends paid
Increase in debt
Other financing cash flow
(600)
(8)
(600)
(47)
-
(120)
23
1,807
122
-
-
-
-
-
13
Cash flow from financing activities
(11)
Cash at beginning of period
(112)
53
7
1,695
2
53
7
462
523
1,770
1,415
976
Total cash generated
65
1,265
Forex effects
(4)
Implied cash at end of period
523
(18)
1,770
(355)
1,415
(439)
(408)
-
-
976
568
Source: Company data, RHB
See important disclosures at the end of this report
4
Anton Oilfield (3337 HK)
20 January 2015
Financial Exhibits
Balance Sheet (CNYm)
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
Total cash and equivalents
539
1,803
1,448
1,009
601
Inventories
487
541
436
542
650
Accounts receivable
948
1,332
737
903
1,083
Other current assets
Total current assets
Total investments
240
191
211
258
309
2,214
3,867
2,832
2,711
2,643
4
17
17
17
17
Tangible fixed assets
984
1,624
2,185
2,543
2,852
Intangible assets
371
375
364
353
343
Total other assets
20
85
85
85
85
Total non-current assets
1,379
2,101
2,651
2,998
3,297
Total assets
3,593
5,968
5,483
5,709
5,940
Short-term debt
212
396
400
400
400
Accounts payable
730
704
582
722
866
Other current liabilities
267
508
317
353
411
1,209
1,608
1,299
1,475
1,678
299
1,983
2,100
2,100
2,100
4
2
1
1
1
303
1,984
2,101
2,101
2,101
1,512
3,593
3,400
3,575
3,778
201
203
201
201
201
1,673
1,960
1,852
1,856
1,874
Total current liabilities
Total long-term debt
Other liabilities
Total non-current liabilities
Total liabilities
Share capital
Retained earnings reserve
Other reserves
Shareholders' equity
Minority interests
Other equity
98
120
1,972
2,283
1,999
109
93
84
(0)
0
(0)
(53)
(7)
2
2,050
2,077
84
85
-
(0)
Total equity
2,081
2,375
2,083
2,133
2,162
Total liabilities & equity
3,593
5,968
5,483
5,709
5,940
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
59.2
26.4
(24.1)
22.4
20.0
Operating profit growth (%)
124.3
42.6
(100.0)
232662.7
20.0
Net profit growth (%)
291.1
26.4
(142.2)
(98.2)
0.0
EPS growth (%)
287.9
24.4
(141.3)
(98.2)
0.0
Bv per share growth (%)
17.5
14.7
(12.4)
2.5
1.3
Operating margin (%)
19.3
21.8
0.0
7.2
7.2
Net profit margin (%)
15.1
15.1
(8.4)
(0.1)
0.7
Return on average assets (%)
9.9
8.0
(2.8)
(0.1)
0.3
Return on average equity (%)
16.6
18.0
(7.5)
(0.1)
1.0
Net debt to equity (%)
(1.4)
24.2
50.5
69.9
87.9
DPS
0.05
0.06
0.00
0.00
0.00
Recurrent cash flow per share
0.17
0.18
0.18
0.05
0.08
Source: Company data, RHB
Key Ratios (CNY)
Revenue growth (%)
Source: Company data, RHB
See important disclosures at the end of this report
5
Anton Oilfield (3337 HK)
20 January 2015
SWOT Analysis
 Anton is the largest private oil servicing company in
China with the best technology and technical knowhow among its private firm peers
 The anticorruption
investigation on
China National
Petroleum Corp
has delayed
exploration and
production
(E&P) activities
in China
 PetroChina and
Sinopec have
lower E&P
capex budgeted
for 2014
 Uncertain
political situation
in Iraq
 Stronger
competition in
China
 Anton has the most comprehensive product lines,
covering all market segments
 China is
opening up the
oil servicing
industry to
private firms
 Iraq has strong
demand for oil
services
 Partnership with
Schlumberger,
the global
leader in the oil
servicing
industry, may
enhance
knowledge
transfer
 State-owned enterprise (SOE) competitors are
subsidiaries of China National Petroleum
Corp/Sinopec
 Anton has much less equipment than its SOE
competitors
P/E (x) vs EPS growth
P/BV (x) vs ROAE
200%
1.4
14%
30
150%
1.2
12%
25
100%
1.0
10%
20
50%
0.8
8%
15
0%
0.6
6%
10
-50%
0.4
4%
5
-100%
0.2
2%
0
-150%
0.0
0%
EPS growth (rhs)
Source: Company data, RHB
Jan-13
Jan-13
P/E (x) (lhs)
P/B (x) (lhs)
Jan-16
16%
35
Jan-15
1.6
Jan-14
250%
Jan-12
18%
40
Jan-16
20%
1.8
Jan-15
2.0
300%
Jan-14
350%
45
Jan-12
50
Return on average equity (rhs)
Source: Company data, RHB
Company Profile
Anton Oilfield Services Group (Anton) is an independent oilfield services group that focuses on providing stimulation services to
improve the product efficiency of oil and gas (O&G) fields. Established in 1999, Anton has built strong relationships with state-owned
exploration and production (E&P) companies such as China National Petroleum Corp (CNPC) and Sinopec, and has received both
domestic and overseas orders from their subsidiaries. Anton also cooperates with Schlumberger, the largest oilfield services company
in the world, to tap into the integrated project management (IPM) services market. The company has a strong presence in Tarim and
Erdos, and will develop the Sichuan Basin as its growth driver.
See important disclosures at the end of this report
6
Anton Oilfield (3337 HK)
20 January 2015
Recommendation Chart
Price Close
5.09
1.30
2.00
1.70
1.20
6.00
6.09
4.73
7.07
6.37
Recommendations & Target Price
na
7.09
4.09
3.09
2.09
1.09
Buy
0.09
Jan-10
Neutral
Sell
Apr-11
Trading Buy
Aug-12
Take Prof it
Not Rated
Nov-13
Source: RHB, Bloomberg
Date
Recommendation
Target Price
Price
2015-01-13
Sell
1.30
1.78
2014-10-28
Sell
1.20
1.78
2014-10-08
Sell
1.70
2.43
2014-08-29
Sell
2.00
3.33
2014-07-22
Neutral
4.73
4.42
2014-03-20
Neutral
4.73
5.12
2013-10-17
Buy
6.00
4.93
2013-08-13
Buy
6.00
5.52
2013-07-15
Buy
6.37
4.94
2013-05-29
Neutral
7.07
6.63
Source : RHB, Bloomberg
See important disclosures at the end of this report
7
RHB Guide to Investment Ratings
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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
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