New Stock Preview | Tianao Testing "Solo Flight" Challenge, ANTON OILFIELD (03337) Split Prospects Uncertain

Due to the long-term valuation at a low level of 0.5 times PB, the domestic non-state-owned onshore oilfield service leader - ANTON OILFIELD (03337) has accelerated the pace of listing its TIC business (Testing, Inspection, and Certification). It is observed that Antong Inspection Group Co., Ltd. (hereinafter referred to as "Antong Inspection"), indirectly owned 100% by ANTON OILFIELD, submitted the main board listing application to the Hong Kong Stock Exchange on June 30, with Dongxing (Hong Kong) as its exclusive sponsor. The market believes that the main reasons for ANTON OILFIELD's spin-off of Antong Inspection for listing on the Hong Kong Stock Exchange are twofold. On the one hand, the spin-off of high-quality TIC assets for independent listing is expected to break the single valuation anchor of the parent company in the oilfield service sector and promote valuation recovery; on the other hand, Antong Inspection urgently needs capital support to expand its business footprint. Antong Inspection stated that the funds raised from this listing will be used for upgrading high-end testing services, integrating the industrial chain, upgrading self-developed technologies, expanding service networks at home and abroad (especially in Iraq and the Middle East markets), and supplementing daily operating funds. However, in terms of performance, Antong Inspection is currently facing the dilemma of "increasing revenue without increasing profits." From 2023 to 2025, Antong Inspection's revenues are approximately 474 million, 447 million, and 497 million yuan respectively, showing a fluctuating upward trend. However, during the same period, the net profits were approximately 123 million, 103 million, and 100 million yuan respectively, continuously declining. Against the backdrop of weakening profit margins, whether Antong Inspection can obtain sufficient valuation premium in the Hong Kong stock market will to a certain extent determine the effectiveness of ANTON OILFIELD's spin-off strategy. Changes in major customer demands have led to revenue fluctuations, while declining gross profit margins continue to suppress profit margins. TIC (Testing, Inspection, and Certification) services, as compliance and technical verification services provided by professional institutions, are gradually moving from point breakthroughs to systematic operations. Their integrated solutions cover the entire asset lifecycle, including auditing, consulting, testing, and certification. This effectively helps companies operate in compliance, manage risks, and enhance commercial value, and is now widely used in key sectors such as oil and gas, electricity, and marine engineering. Focusing on the oil and gas sector, Antong Inspection is a core participant in this field. The current oil and gas testing market is divided into two segments: one end is self-owned institutions of major oil and gas groups serving their parent companies, and the other end is independent third-party professional institutions. Antong Inspection, on the other hand, is unique, belonging to a "third-party service institution with an oilfield group background and an independent third-party identity," which positions it uniquely in the industry competition with both industrial depth and market flexibility. As of now, Antong Inspection has built an extensive domestic and international service network. In the domestic market, the company provides services to major oil and gas fields in China through regional centers, with revenue from domestic sources accounting for 79.7% in 2025. In terms of overseas operations, Antong Inspection operates primarily in Iraq, expanding its business to key oil and gas production areas along the "Belt and Road" route, including the Middle East, Africa, and Central Asia. According to data from Frost & Sullivan, Antong Inspection is the only Chinese testing and inspection certification company recognized by the Iraqi Ministry of Oil as a qualified second-party inspection service provider. In 2025, revenue from the Middle East, Africa, and other countries accounted for 13.4%, 3.8%, and 3.1% respectively. From a business structure perspective, Antong Inspection's core service portfolio consists of full-cycle oil and gas development engineering solutions and infrastructure solutions, accounting for 59.5% and 36.1% of revenue respectively in 2025, totaling as high as 95.6%. At the same time, the company selectively and strategically expands its new energy business scale, providing high value-added smart solutions to meet the growing demand for real-time monitoring from customers, with revenue from these areas accounting for 3.8% and 0.6% in 2025. In 2024, Antong Inspection's overall revenue declined by 5.6% mainly due to changes in production arrangements of major domestic customers, resulting in a general decrease in demand for the company's services. Oil and gas development solutions, infrastructure solutions, and new energy solutions all saw varying degrees of decline during the reporting period. Revenue from the Middle East market recorded a growth of 19.1% to 39.615 million yuan, cushioning the downturn in the domestic market to some extent. In 2025, Antong Inspection's overall revenue increased by 11.1% to 497 million yuan, mainly driven by additional revenue from completing several large new projects during the reporting period. Revenue from oil and gas development solutions, infrastructure solutions, and new energy solutions all saw varying degrees of increase. While returning to growth in the domestic market, revenue from the Middle East for Antong Inspection in 2025 surged by 68.5% to 66.746 million yuan, demonstrating strong growth momentum in the Middle East market. As revenue fluctuates and rises, the continued decline in profit margins for Antong Inspection is mainly due to two reasons. Firstly, the drag of weak gross margins. It was found that from 2023 to 2025, Antong Inspection's gross margins were 41.8%, 41.0%, and 37.4% respectively, mainly due to changes in project and client mix. Several projects required customized services and high service specifications, leading to increased execution costs and pressure on gross margins. Secondly, the continuous growth in administrative expenses has to some extent inhibited the release of profits. According to the prospectus, from 2023 to 2025, Antong Inspection's administrative expenses were 37.171 million yuan, 42.461 million yuan, and 51.308 million yuan, accounting for 7.84%, 9.49%, and 10.32% of total revenue respectively, with the proportion continuously increasing, eating into profit margins. Over-reliance on a single major customer accounting for over half of revenue, with the new energy business accounting for less than 4%. Financial data is a comprehensive reflection of a company's operating conditions, but digging deeper into this data highlights the potential business challenges facing Antong Inspection. Behind the revenue fluctuations at Antong Inspection, there is a direct relationship with high customer concentration. According to the prospectus, from 2023 to 2025, revenue from the top five customers accounted for 82.4%, 78.6%, and 79.3% respectively, maintaining around 80% overall, indicating a very high customer concentration level. More alarmingly, the dependence on major customers is increasing. From 2023 to 2025, revenue from the largest customer accounted for approximately 49.7%, 51.3%, and 52.6%, respectively. Excessive reliance on a single customer can lead to significant fluctuations in demand directly affecting the company's performance. As oil and gas field testing services are mainly project-based with framework agreements, renewals are not entirely controllable, and capital expenditures in the oil and gas upstream sector are cyclical, leading to noticeable fluctuations. With these factors combined, the very high customer concentration level will significantly amplify the risks of revenue instability. At the same time, high customer concentration can weaken the company's bargaining power, corresponding to the continuous decline in gross profit margins at Antong Inspection. Although the company explains in the prospectus that the decline in gross margins is due to the acceptance of many high-specification customized projects, leading to rising labor and equipment execution costs, it may also reflect that under project-based arrangements, high-end projects may not necessarily bring high margins to the company. On the contrary, cost increases may eat into premiums. Therefore, the trend of gross profit margins may become a key indicator of the strength of Antong Inspection's industrial chain discourse. Corresponding to the pressure on gross profit margins is the continuous rapid increase in trade receivables, which is another manifestation of Antong Inspection's weak bargaining power. According to the prospectus, from 2023 to 2025, trade receivables for Antong Inspection were approximately 240 million, 275 million, and 339 million yuan respectively, with the turnover days of trade receivables increasing from 177 days to 230 days during the same period. The increase in trade receivables and the extension of turnover days will not only increase the financial pressure on Antong Inspection's turnover, but also raise the possibility of bad debts, affecting profit release. To hedge against the risk of over-reliance on major oil and gas customers, Antong Inspection has long been laying out plans to open up new growth space through the development of new energy solutions. However, from the current results, revenue from new energy solutions for Antong Inspection in 2025 was only 18.87 million yuan, accounting for only 3.8% of the company's total revenue. Clearly, the contribution of new energy solution services to the company's revenue structure and valuation logic in the short term remains very limited. Furthermore, although revenue from the Middle East market has been growing steadily since 2023, becoming one of the engines driving the company's performance growth, this business line is actually a "double-edged sword". On the one hand, as the only Chinese second-party inspection service provider recognized by the Iraqi Ministry of Oil, Antong has built a strong competitive moat based on this exclusive qualification, which is the core foundation for the rapid growth of its revenue in the Middle East. On the other hand, given that the Middle East business is highly focused on geopolitically sensitive areas such as Iraq, there is a possibility of external variables such as economic sanctions, export controls, and political instability impacting the business. This uncontrollable policy risk may lead capital markets to discount the valuation of the Middle East business accordingly.