Looking at 2023 as a whole, against the backdrop of the decline in premiums due to the geographical conflict and interest rate hikes by the Federal Reserve, the trend of international oil prices fluctuated and declined throughout the year, and the revenue and net profit of international oil and gas giants such as Saudi Aramco and ExxonMobil both declined.

The decline in oil prices has reduced the desire and progress of oil and gas companies to develop, putting objective pressure on the growth of the entire oil service industry.

However, looking at the future, it is less and less likely that oil prices will continue to fluctuate and fall. It has become a consensus that the current round of extremely long interest rate hikes in the US has come to an end. The main disagreement may still be the issue of the pace of interest rate cuts by the Federal Reserve, but with the arrival of subsequent interest rate cuts, international oil prices have gained more momentum.

Oil prices remain at medium to high levels, and upstream increases capital investment to expand and increase production, which is a driving force for oil service companies to recover long-term performance.

In 2023, Dalip Holdings (1921.HK) achieved operating income of $3.85 billion (unit: RMB, same below), net profit of $135 million, and a final dividend of HK$0.04 per share.

Simply judging from revenue and profit data, Dalip Holdings' performance declined last year. The main reason behind this was that the industry as a whole was under pressure last year. However, as mentioned earlier, there is certainty that the oil service industry is becoming more prosperous. The key is whether enterprises can adapt to changes in the current situation and make timely adjustments.

1. High capital expenditure operation drives a rise in the prosperity of the oil service industry

Focusing on the Chinese market, under the “rich coal, poor oil, and low gas” energy endowment conditions, China's external dependence on oil and natural gas remains high, exceeding 70% and 40%, respectively. This current situation not only poses a potential risk to the country's energy security, but also places new demands on China's economic development model.

In order to meet this challenge, the policy side proposed a strategy to increase storage and production, with the aim of increasing domestic oil and gas exploration and production capacity and reducing external dependence. The core of this strategy is to increase investment in domestic oil and gas resources, improve the development efficiency of oil and gas fields, and promote technological progress and innovation in the oil and gas industry.

In this context, “three barrels of oil” are leaders in the domestic oil and gas industry, and they all implement “increasing storage and production” as a top priority. The best proof is that the capital expenditure of these state-owned energy giants has maintained a high level of operation.

In 2022, the capital expenditure of CNPC, Sinopec, and CNOOC increased by 24%, 22%, and 14.6%, respectively. The total capital expenditure of “three barrels of oil” exceeded 400 billion yuan.

Although CNPC and Sinopec have yet to release specific financial data for 2023, according to information that has been publicly disclosed so far, CNOOC's capital expenditure in 2023 was 129.6 billion yuan, an increase of 29% over the previous year. Furthermore, according to the company's management, CNOOC's planned capital expenditure for 2024 is 125 billion to 135 billion yuan.

Seen from this perspective, the attitude of state-owned oil and gas giants to respond positively to the country's “increase storage and production” will not change, which also brings greater certainty to the performance growth of related oil and service companies.

It is worth mentioning that increasing storage and production, as an important strategy for the country to guarantee energy security, certainly must not only rely on state-owned industrial giants; it also requires the deep participation of private enterprises with strong technical reserves and rich operating experience to jointly exert the strength of industrial collaboration.

As the backbone of private enterprises specializing in high-end energy equipment such as oil and gas pipes, new energy pipes, and special seamless steel pipes, Dalipu Holdings has directly benefited from the increase in industrial prosperity.

According to reports, in addition to continuing to maintain a certain share in the domestic CNPC and Sinopec markets, Dalipu Holdings achieved a major historic breakthrough in the 2023-2024 tender for the CNOOC market, winning the bid volume of nearly 180,000 tons, equivalent to 30% of Dalip Holdings' annual production capacity, laying a solid foundation for subsequent performance restoration.

Being widely recognized by major companies in the industry is inseparable from the technological advantages that Dalipu has accumulated over a long period of time.

In 2023, the company's self-designed DLP-T4 is one of the few high-end products in the world that has passed the new standard level 4 evaluation test, and has been used in batches for ultra-deep shale gas extraction of 6,000 meters or more in CNPC's Southwest Oil and Gas Field.

Furthermore, the rare earth corrosion-resistant oil casing developed by the company in collaboration with domestic universities was first launched in China at the end of 2022. Compared with conventional products, rare earth corrosion-resistant oil casing increases corrosion resistance by more than 50% without increasing costs, which helps to greatly improve the life span of oil and gas wells and reduce mining costs.

In order to better grasp the dividends of this wave of rising industry prosperity, Dalipu Holdings has accelerated production capacity construction.

According to reports, Dalipu Holdings' production base in Cangzhou, Hebei is currently constructing a digital “intelligent” transformation and upgrading project, and the new increased production capacity of the project is expected to be realized in early 2026. After the overall project is officially put into operation, the company's pipe blank production capacity will reach 1.2 to 1.4 million tons, the production capacity of special seamless steel pipes will reach 1 million tons, and the production capacity of oil and gas pipes will reach 800,000 tons. At that time, the production capacity will double compared to the present.

(Source: Company Information, Anxin International)

This means that in the context of rising demand in the future, even assuming that future product prices remain the same, relying only on the increase brought about by capacity expansion, the company's future revenue is expected to grow by leaps and bounds. If this is compounded by rising prices brought about by strong demand, and interpreted as a “sharp rise in volume and price” logic, Dalip Holdings' performance growth over the next few years will be even more impressive.

More of the above is just a deduction from the domestic market; in fact, the huge potential of the Shanghai foreign market may be the source of growth momentum for Dalip Holdings in the longer term.

2. Using the Middle East as a fulcrum to launch a blueprint for going overseas

In recent years, going overseas has become an important gripper for Chinese companies to seek new growth points, even more so for the oil service industry. In terms of natural oil and gas endowments alone, overseas markets such as the Middle East, Africa, and Latin America are undoubtedly more attractive.

Furthermore, as China's strategy of opening up to the outside world continues to advance, the oil service industry can export advanced oil field service technology and management experience to the world, enhance China's influence in the global oil and gas industry, and use external resources and markets to support the transformation and upgrading of the domestic economy.

As a well-known high-end energy equipment manufacturer in the industry, Dalipu Holdings is also a pioneer in this wave of going overseas. Since 2005, it has set up overseas markets, and its products have been sold to 23 countries and regions around the world. In 2023, the company completed the certification of 5 overseas oil companies, achieving full coverage of the six continents of the overseas market.

(Source: Company Information, Anxin International)

It is worth mentioning that recently, Dalip Holdings announced a strategic plan to establish a corporate headquarters in the Middle East, which reflects the company's deep understanding of the country's strategic needs and industry development trends.

First, Dalip Holdings' overseas strategy fits perfectly with the “Belt and Road” initiative. By setting up a corporate headquarters in the Middle East, Dalip can not only better respond to the country's call for opening-up and international cooperation, but also effectively connect the energy markets of the three continents of Asia, Europe, and Africa, and strengthen the interconnection of energy resources between China and the world.

Furthermore, from the perspective of industrial demand, the global energy market is undergoing rapid transformation. The Middle East is the most important oil and gas producing region in the world. According to OPEC (Organization of Petroleum Exporting Countries) data, the Middle East region accounts for nearly half of the world's total oil reserves. According to the US Energy Information Administration (EIA), Middle Eastern countries export about one-third of global oil exports every day.

As a result, demand for high-end energy services is strong. Through this “going overseas” strategy, Dalip Holdings can give full play to its technical and service advantages in the field of energy services to meet the demand for high-quality energy services in the Middle East and the global market.

Furthermore, according to 2023 data, the Middle East market contributed 56.73% of the company's overseas market revenue. From the company's perspective, it is certainly a smart move to develop an overseas strategy in an overseas market that it is more familiar with.

Specifically, Dalip Holdings will establish smart factories, R&D centers, and data control centers in the Middle East, which will not only provide direct employment opportunities in the region, but will also introduce advanced manufacturing technology and management experience to the Middle East to promote industrial upgrading and diversified economic development in the Middle East region.

At the same time, Dalipu Holdings will use its technical advantages in high-end energy user services and in the fields of oil and gas pipes, special seamless steel pipes, hydrogen delivery pipes, etc., to carry out in-depth cooperation with relevant departments and important energy companies in the Middle East.

This cooperation includes not only traditional energy exploration, development and production services, but also cooperation in new energy and green energy projects to jointly explore and implement green development paths in the energy industry.

Through such cooperation, Dalip Holdings will not only be able to provide more professional and efficient services for energy development in the Middle East region, but will also further enhance its international competitiveness and lay a solid foundation for the company's long-term development.

III. Concluding Remarks

The trend of Dalipu Holdings' basic orientation towards good development has also been recognized by the agency. Recently, CBC Capital's research report recently gave Dalip Holdings a “buy” rating. The target price is HK$10. Compared with the latest market price, there is room for growth of more than double.

At the end of the day, it is still the trend of oil and gas companies operating at a high level of capital expenditure, and the certainty brought to the oil service industry is gradually increasing. Meanwhile, Dalip Holdings has become the core beneficiary of industry growth through high-end development and capacity expansion, compounding the increase in growth expectations in overseas markets.