In "The Big Banks," Citigroup: COSL's core profit last year exceeded expectations, raising the target price to 10.8 yuan

Citi published a research report indicating that China Oilfield Services Limited (02883.HK) saw its net profit grow by 22% year-on-year to RMB 3.842 billion last year, but the performance fell short of expectations, mainly due to one-off items such as asset impairment and foreign exchange losses. Excluding these impacts, the core net profit last year was RMB 4.4 billion, exceeding the bank's and market expectations by 6% and 9%, respectively. The group declared a final dividend of HKD 0.33 per share, with a payout ratio of 35%, unchanged from last year, equivalent to a dividend yield of approximately 4%.

The report noted that the drilling business was a highlight, with EBIT in the second half of last year increasing by 14% half-on-half to RMB 783 million, reaching a new high since 2018. The utilization rate of semi-submersible drilling platforms increased by 18 percentage points year-on-year to 83%, and the day rate grew by 22% year-on-year. However, the oil well services business underperformed expectations, with EBIT in the second half remaining flat half-on-half, and the EBIT profit margin dropping from 17.1% in the first half to 14.1%. The bank believes that the drilling business is recovering from the oil market downturn in 2015/2016, but the oil well services have not improved in tandem. If both businesses can improve simultaneously, it will drive a more sustained valuation reassessment and is expected to support the stock price stabilizing above a 1x price-to-book ratio.

Citi raised the target price for China Oilfield Services Limited's Hong Kong stock from HKD 9.4 to HKD 10.8, based on an increase in the target price-to-book ratio to 0.9x (previously 0.8x) to reflect the recovery of the drilling business; the target price for China Oilfield Services Limited (601808.SH) A shares was raised from RMB 19.6 to RMB 22, maintaining an "outperform" rating