The net profit of China Oilfield Services (COSL) grew 23% YoY to RMB1,964m in 1H25. We consider it in line with our forecast as it reached 49% of our original full-year forecast. The decent growth was mainly driven by rise in day rate of its semi-subs and the increase in operating days of its rigs. We expect its earnings to be flat HoH in 2H25 with full-period contributions from rigs which started operation in high- rate areas in 1H25 offset by headwinds in other operations. While we trim our 2025-27 earnings forecasts by 3-11% and reduce our target price for its H shares to HK$9.05, we reiterate our BUY calls.

Key Factors for Rating

The 85% YoY surge in the operating profit (to RMB681m) of the drilling segment was the key growth driver in 1H25. The operating days of its jack-ups and semi- subs increased 11% YoY and 10% YoY respectively. The average day rate of its semi-subs surged 28% YoY as the company had two semi-subs started working in North Sea and one in offshore Brazil. The day rates of these areas are much higher than offshore China. The operating profit of its marine support segment also grew 56% YoY to RMB159m over the same period on increase in number of vessels in operations and improvement in utilisation rate.

However, the operating profit of its well services segment surprisingly dropped 7% YoY (to RMB2.1bn) in 1H25 as the demand from certain markets weakened. Its geophysical business slipped into a small loss on weakened demand.

We expect the company’s earnings to be flat HoH in 2H25. We should see full period contributions from the three rigs in high-rate areas mentioned above. However, this should be more or less offset by headwinds in other operations amid lower oil price. We also assume no more impairment after RMB82m booked in 1H25.

We trim our 2025-27 earnings forecasts b 3-11% to factor in less bullish demand amid expected weakness in oil price ahead.

Key Risks for Rating

Further decline in revenue / earnings at well services segment.

Lack of progress in developing overseas markets.

Valuation

We lower our target price for its H shares from HK$9.39 to HK$9.05. We reduce our target valuation from 0.9x 2025E P/E to 0.85x given the less bullish earnings outlook.

We also reduce our target price for its A shares from RMB20.90 to RMB18.61. We still base our target price on its 3-month average A-H premium, which has narrowed from 137% to 124% since late April.