As its valuation has long remained at a low level of around 0.5 times price-to-book, Anton Oilfield (03337), a leading domestic non-state-owned onshore oilfield services provider, has accelerated the listing process for its TIC (Testing, Inspection, and Certification) business.
Intelligence indicates that Tongao Testing Group Co., Ltd., which is indirectly wholly-owned by Anton Oilfield, submitted an application to list on the Main Board of the Hong Kong Stock Exchange on June 30, with Dongxing Securities (Hong Kong) acting as the sole sponsor.
Market observers believe the spin-off and listing of Tongao Testing is driven by two primary considerations.
Firstly, it aims to separate the high-quality TIC assets for an independent listing, potentially breaking the parent company's singular valuation anchor tied to oilfield services and driving a valuation re-rating.
Secondly, Tongao Testing urgently requires capital to expand its business operations.
Tongao Testing stated that the proceeds from the listing will be used for upgrading high-end testing services and integrating the industrial chain, iterating and upgrading self-developed technologies, expanding domestic and international service networks (especially in Iraq and the broader Middle East), and supplementing working capital.
However, judging by its financial performance, Tongao Testing is currently caught in an awkward situation of "increasing revenue without increasing profit."
From 2023 to 2025, Tongao Testing's revenue was approximately 474 million, 447 million, and 497 million yuan respectively, showing a fluctuating upward trend.
In contrast, its net profit for the same periods was approximately 123 million, 103 million, and 100 million yuan, indicating a continuous decline.
Against the backdrop of weakening profitability, whether Tongao Testing can secure sufficient valuation premium in the Hong Kong market will, to some extent, determine the success of Anton Oilfield's spin-off strategy.
Key Factors Behind Revenue Fluctuations and Profit Pressure
TIC services, which provide compliance and technical verification, are evolving from single-point solutions towards integrated systems.
These comprehensive solutions cover the entire asset lifecycle, integrating auditing, consulting, testing, and certification to help companies operate compliantly, manage risks, and enhance commercial value, and are now widely used in critical sectors like oil and gas, power, and marine engineering.
Focusing on the oil and gas sector, Tongao Testing is a key player.
The current oil and gas testing market has a dual structure: on one end are in-house units of large oil and gas groups primarily serving their parent companies, and on the other are pure third-party specialized agencies.
Tongao Testing occupies a unique position as a "third-party entity with oilfield services group backing," combining industrial depth with market flexibility.
To date, Tongao Testing has established an extensive domestic and international service network.
Domestically, the company serves major oil and gas fields through regional centers, with domestic revenue accounting for 79.7% in 2025.
Internationally, with Iraq as its core operational base, Tongao Testing has expanded to key oil and gas production regions along the Belt and Road, including the Middle East, Africa, and Central Asia.
According to Frost & Sullivan, Tongao Testing is the only Chinese TIC company recognized by the Iraqi Ministry of Oil as a qualified second-party inspection service provider.
In 2025, revenue contributions from the Middle East, Africa, and other countries were 13.4%, 3.8%, and 3.1% respectively.
In terms of business structure, Tongao Testing's core services are full-cycle oil and gas development engineering solutions and infrastructure solutions, which accounted for 59.5% and 36.1% of revenue in 2025, totaling 95.6%.
Concurrently, the company is selectively and strategically expanding its new energy business and providing high-value-added intelligent solutions to meet growing customer demand for real-time monitoring; these accounted for 3.8% and 0.6% of revenue in 2025.
The overall revenue decline of 5.6% in 2024 was primarily due to changes in production schedules of major domestic clients, leading to a general decrease in demand for the company's services.
Revenue from oil and gas development engineering solutions, infrastructure solutions, and new energy solutions all declined to varying degrees during the reporting period.
Revenue from the Middle East market, however, grew by 19.1% to 39.615 million yuan due to business expansion, providing some buffer against domestic market weakness.
In 2025, Tongao Testing's overall revenue grew by 11.1% to 497 million yuan, mainly driven by the completion of several large new projects generating additional income.
Revenue from oil and gas development engineering solutions, infrastructure solutions, and new energy solutions all increased.
While the domestic market returned to growth, revenue from the Middle East surged 68.5% to 66.746 million yuan in 2025, indicating continued strong growth momentum in that region.
Despite fluctuating revenue growth, the continuous decline in profit is attributable to two main factors: first, the drag from weakening gross margins.
Analysis shows that from 2023 to 2025, Tongao Testing's gross margin was 41.8%, 41.0%, and 37.4% respectively.
This decline is primarily due to changes in project and client mix, where certain projects required customized services and higher service specifications, leading to increased execution costs and putting pressure on margins.
Secondly, the continuous growth in administrative expenses has also suppressed profit growth.
The prospectus shows that from 2023 to 2025, administrative expenses were 37.171 million, 42.461 million, and 51.308 million yuan, accounting for 7.84%, 9.49%, and 10.32% of total revenue respectively.
The increasing proportion of these expenses has eroded profit margins.
Underlying Business Challenges and Strategic Risks
Financial data reflects overall business conditions, but a deeper analysis reveals clearer potential operational challenges for Tongao Testing.
The volatility in revenue is directly related to high customer concentration.
The prospectus indicates that from 2023 to 2025, revenue from the top five clients accounted for 82.4%, 78.6%, and 79.3% respectively, remaining around 80%, which indicates an abnormally high level of customer concentration.
More notably, reliance on a single major client is intensifying.
From 2023 to 2025, revenue from the largest client accounted for approximately 49.7%, 51.3%, and 52.6% respectively.
Excessive reliance on a single client means fluctuations in that client's demand can directly dictate the company's performance.
As oil and gas field testing services are primarily project-based and governed by framework agreements, contract renewals are not entirely controllable, and upstream oil and gas capital expenditure is inherently cyclical, leading to relatively pronounced volatility.
Under these combined factors, extreme customer concentration creates a "double amplification" effect on revenue stability, significantly increasing the risk of earnings volatility.
Simultaneously, excessive customer concentration weakens the company's bargaining power, which may correspond to Tongao Testing's declining gross margins.
Although the company explains in its prospectus that the margin decline is due to undertaking many high-specification customized projects, leading to increased labor and equipment execution costs, this also raises the question of whether, under a project-based model, high-end projects necessarily yield high margins, or if rigid cost increases erode premiums.
Therefore, the trend in gross margin may be a key indicator for assessing Tongao Testing's bargaining power in the industrial chain.
Corresponding to margin pressure is the rapid and continuous increase in trade receivables, another manifestation of weak bargaining power.
The prospectus shows that from 2023 to 2025, trade receivables were approximately 240 million, 275 million, and 339 million yuan respectively.
The days sales outstanding for trade receivables also lengthened from 177 days to 230 days over the same period.
The increase in trade receivables and the lengthening of the collection cycle not only increase working capital pressure but also raise the possibility of bad debts, affecting profit realization.
To mitigate reliance on major oil and gas clients, Tongao Testing has already begun diversifying, aiming to open new growth avenues by developing new energy solution services.
However, current results show that revenue from new energy solutions in 2025 was only 18.87 million yuan, accounting for just 3.8% of total revenue.
Clearly, the substantive contribution of new energy solution services to the company's revenue structure and valuation logic remains very limited in the short term.
Furthermore, although revenue from the Middle East market has been growing consistently since 2023, becoming one of the engines driving performance growth, this business line is a double-edged sword.
On one hand, as the only Chinese second-party inspection service provider recognized by the Iraqi Ministry of Oil, Tongao Testing has built a deep competitive moat with this exclusive qualification, which is the core foundation for its rapid Middle East revenue growth.
On the other hand, as the Middle East business is highly focused on geopolitically sensitive regions like Iraq, it faces potential risks from external variables such as economic sanctions, export controls, and political instability.
This uncontrollable policy risk means the capital market may apply a corresponding risk discount when valuing the Middle East business.
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