The globally leading onshore oil rig supplier Honghua Group Limited (Ticker: 196.HK, “Honghua” or “the Company”) today announced unaudited consolidated annual results for the year ending on 31 December 2019 (“the period”).
During the period, centering on the principles of “Business Model Innovation, Management Innovation, Technology Innovation”, Honghua continued to explore the model for high-quality sustainable development. Honghua recorded rapid growth in both operating revenue and net profit during the year, reaching a record high since its listing in 2015. Honghua’s revenue from continuing operations amounted to approximately RMB4,425.7 million, representing an increase of 5.2% from RMB4,205.2 million for 2018. The profit attributable to equity shareholders increased by 30.6% from RMB82.3 million for 2018 to approximately RMB107.5 million in 2019 while basic earnings per share in 2019 was RMB2.03 cents. Honghua’s oil and gas engineering service achieved major breakthroughs and the sales of core components such as electric fracturing pumps grew rapidly – revenue and profit of this service line continued to grow for a second year. In 2019, thanks to the national energy security strategy and the prime period for the development of unconventional oil and gas such as shale gas, Honghua achieved significant growth in new domestic orders, bringing the proportion to domestic sales revenue for the year reached 51%, the highest level since the listing of the Company.
OIL AND GAS ENGINEERING SERVICE BUSINESS SEGMENTS ACHIEVED MAJOR BREAKTHROUGHS ACROSS MULTIPLE AREAS IN BOTH DOMESTIC AND OVERSEAS MARKETS
In terms of drilling services, Honghua had a total of 94,018 meters in footage during the year, which is the highest workload in last three years. The turnkey project on the integration of fracturing oil testing for the first drilling rig at the shale gas platform in Changning, Sichuan has completed, marking the leap-forward breakthrough in oil services from drilling and fracturing single engineering services to platform turnkeys. During the year, Honghua’s oil service team entered Chongqing market for the first time. Honghua also broke the highest footage record in a single day for the project and successfully contracted national shale gas development demonstration project in Guizhou. It has obtained project orders, which worth over USD30 million in aggregate, from international renowned oil service companies, with service term effective throughout 2020. In the Middle East, Honghua’s oil service has established good reputation with its quality service, and successfully renewed the drilling project, which worth approximately USD16 million, with existing customer, COSL. Production efficiency for the year was 80.76%, up by 16.9% compared to last year.
In terms of well completion services, Honghua focused on shale gas market. The entering into of the shale gas fracturing engineering service agreement extended the scope of fracturing services from purely pumping service to comprehensive fracturing services. The number of stages for pumping service increased by 2.5 times to 3,000 in 2019. Honghua obtained RMB90 million fracturing service contract from the tight oil and gas exploration and development department of Southwest Oil & Gasfield, which is the first tight gas fracturing engineering service contract of the Company. During the period, Honghua also entered into the shale gas fracturing engineering service agreement, which worth approximately RMB50 million in aggregate, with a subsidiary of CNPG. Our goal on creating a complete set for our fracturing equipment has gradually realized on schedule. In Sichuan and Chongqing, the complete set of fracturing equipment, including 6000HP electric fracturing pumps, electric sand mixing shovel, smart control center, 105MPa high pressure manifold and flexible water tanks etc. independently invented by Honghua, has been utilized for the first time. As China’s leading electric fracturing pumping service provider, Honghua serviced in Changning, Weiyuan, Rong County and Lu County, Sichuan, Fuling and Nanchuan, Chongqing and Taitema Lake, Xinjiang, covering the four major production zones in China, namely Fuling Shale Gas Field, Nanchuan Shale Gas Field, Weirong Shale Gas Field and Changning Shale Gas Demonstration Zone.
PRODUCT SALES EXCEEDED EXPECTATIONS TO NEW RECORDS
In 2019, Honghua successfully achieved breakthrough in 1 new market, obtained 11 orders from new customers and sold 24 land drilling rigs in total. Thanks to the national energy security strategy, the prime period for the development of unconventional oil and gas as well the increasing CAPEX of China’s big three oil giants, Honghua achieved significant growth in new domestic orders. To highlight, Honghua obtained an order for main drilling rigs from a subsidiary of CNPC Group, which worth RMB110 million. Subsequently, Honghua signed orders for ancillary equipment such as electric system, which worth RMB60 million. Such orders were bided by 6 drilling rig manufacturers, and Honghua won all orders with its high-quality drilling rigs and outstanding aftersales services.
In terms of parts and components sales, we sold 8 sets of fracturing pumps as supporting characteristic equipment of shale gas throughout the year. Meanwhile, Honghua conducted structural optimization on electric fracturing pump, thus improving both operating efficiency and operating time of the product. We have achieved a national new record of zero default for continuous operation of 200 hours in our operation block. Flexible liquid tanks have been recognized by customers, who entered into bulk purchase orders. Hence, the sales of flexible liquid tanks increased by 40% compared to last year. During the year, the progress of creating a complete set for our fracturing equipment ran quickly. We have introduced fracturing ancillary equipment such as electric sand mixing shovel, liquid supply shovel and 105MPa high pressure manifold. In 2019, there was significant increase in the proportion of independent sales of core parts and components to total sales, reflecting the implementation of Honghua’s strategic positioning of “machine-to-component”. The core self-produced parts and components of Honghua, increased by 79% as compared to the corresponding period of last year.
OUTLOOK
In 2020, Honghua will seize the development opportunities in the domestic unconventional oil and gas market, adhere to the three major innovation principles, deepen the strategic structural transformation, optimize the operation and management concepts, and enhance high-quality profitability. Honghua will continue to enhance its two core business advantages in rig drilling and well completion and to conduct a transformational development plan of becoming an intelligent platform. Honghua will also respond to the national policy on energy security and increase the proportion of clean energy. We will promote the general economic and eco-friendly development solution for unconventional oil and gas exploration, facilitate the application of packaging and standardization of complete set of fracturing equipment, with 6000HP electric fracturing pump as core, implement the general eco-friendly development solution of “pumping gas with electricity and combination of gas and electricity”. Meanwhile, leveraging on our competitive edges as manufacturer, and driving our services with equipment, we will further enhance the efficiency of our oil service team and project management capability, thereby further expanding our business scale and enhancing profitability.
Secondly, Honghua will continue to build up its core competitiveness with technologies. We will facilitate the research and commercialization of downhole tools, especially for twist guidance downhole tools, thus creating another feature product line of Honghua. In addition, Honghua will also enhance the upgrade of intelligence electric fracturing system, and facilitate the research and development on deep-sea mining projects such as the fluidization equipment for solidified natural gas hydrate, thus continue to inject vitality to the Company. Focusing on the oil and gas industry, Honghua will fully implement a “platform-mode” development model while leveraging the Company’s advantages in oil and gas equipment technology and manufacturing capability. We plan to obtain our unique industry competitiveness by establishing a global sales network, gathering technology resources from major shareholders and offerings of oilfield service providers, and connecting upstream and downstream corporates as well as external financing and leasing solution providers. We aim to build an oil and gas industry ecosystem and achieve win-win solutions with market players.
In addition, Honghua will continue to focus on emerging markets, expand the domestic market share and explore the equipment upgrade demand as well as the demand on customized drilling rigs in OPEC countries. The macro environment has been severe; however, we will ensure the implementation of major projects in overseas markets. Looking inward, Honghua will focus on the development of new drilling rigs and our equipment improvement business in China. Our key focus will be on two future products: intelligent drilling rigs and intelligent fracturing systems, and an “intelligent” product strategy. We are continuously optimizing our precise management and effectively improving production, delivery and profitability as well as the process and quality control system. In the high-risk cycle, Honghua will strengthen the Company’s cash flow management and control, implement an asset-light operation model, increase the vitality of existing assets, and improve the efficiency of capital management and operations. Leveraging its high-quality development and profitability, Honghua strives to become a global leader in equipment and technology for oil and gas exploration and development, and an integrated supplier offering a full range of energy services and solutions with comprehensive competitive strengths.
About Honghua Group Ltd
Honghua Group Ltd (Stock Code: 0196.HK, “Honghua”) is the main platform for energy equipment development of China Aerospace Science & Industry Corporation (“CASIC”). As one of the leading land drilling equipment manufacturers in the world and the largest land drilling rig exporter in the PRC, Honghua is primarily engaged in developing and manufacturing land drilling equipment (drilling rigs, parts and components as well as downhole tools, etc.), completion products (including fracture package), offshore drilling module and package as well as shale gas and oil exploration and development service. Leveraging strong R&D capability, high-quality production facilities and a mature international sales network, Honghua’s products have been sold to a large number of famous enterprises all over the world, across major oil-production regions such as North America, the Middle East and emerging markets including South America, South Asia, Russia, Central Asia and Africa. In the future, Honghua will continue to focus on its key businesses while increasing the resource allocation to unconventional oil and gas business and the “energy + internet” field. Honghua aims at becoming a world leading oilfield service provider.
