While the company’s net profit of RMB3,842m (up 22% YoY) appeared to miss our forecast, its core earnings were actually in line after removing impairments and FX loss (total RMB623m). We expect its earnings to grow 23% YoY in 2026 with drilling and well services segments to be the key growth drivers. While we trim our 2026-27 earnings forecasts by 5-6%, we reiterate our BUY call on its H shares with target price lifted to HK$10.70.

Key Factors for Rating

Its drilling segment was the key growth driver in 2025, with segmental operating profit jumped almost 3x YoY to RMB1.5bn, mainly on the improved performance of its semi-subs. The number of operating days of its semi-subs surged 27% YoY as operations in offshore China normalised after being hard hit by typhoons in 2024. The utilisation of a few high-end rigs in overseas market also improved. In addition, the average day rate of its semi-subs surged 22% YoY as the four rigs earnings high rates in Norway saw full-period contribution. Another one also started operations in Brazil with high day rate in 2H25.

It was partly negated by the 6% YoY decline in operating profit of the well services segment (to RMB4.2bn), its largest profit contributor. The segmental revenue slipped 1% YoY and segmental operating margin decreased 0.8ppt YoY.

We expect its earnings to grow 23% YoY in 2026 on improved performance from both drilling and well services segments. We assume the operating profit of the drilling segment to grow 6% YoY on further improvement in operating days and average day rate of its semi-subs. We also expect the operating profit of its well services to grow 6% YoY on slightly higher turnover. Besides, we assume no more impairments and FX loss and its interest expense to drop 42% YoY.

The company now has three jack-ups operating in Saudi Arabia and two in Kuwait and they are so far not affected by the war. Besides, the company provides integrated services in Iraq with 23 sets of equipment with three workover equipment suspended. So far, the impact of the war in the Middle East is limited.

Key Risks for Rating

Significant negative impact from the war in the Middle East.

Lack of progress in developing overseas markets.

Valuation

We raise our target price for its H shares from HK$9.70 to HK$10.70 as we roll over target valuation from 0.9x 2025E P/B to 0.9x 2026E P/B.

We increase our target price for its A shares from RMB19.21 to RMB19.41. We still based it on its average 3-month A-H premium, which has narrowed from 117% to 106% since late October 2025.