One of the leading enterprises in the oil casing industry. Shandong Molong, which mainly produces oil casing and covers sucker rods, pumps and pumping units, is the only manufacturer in China to locate a full set of oil drilling and production equipment. The company is one of the earliest enterprises engaged in the production of oil casing and finished pipe in China, with rich experience, the customer recognition of product quality is leading in the industry, and the sales network covers almost all oil production countries in the world.

Out of the trough, performance back to the growth track. In 2011, the company's performance was poor, and the net profit belonging to the owner of the parent company decreased by 39.04% compared with the same period last year, mainly due to two reasons: 1) the depreciation expense was higher in the year when the 180 project was put into production, and the production capacity was not fully released, resulting in high dilution costs; 2) due to the rise in the price of raw materials, while the price of oil and casing did not rise synchronously, the gross profit margin of the industry generally declined. These two negatives will disappear in 2012. In 2012, 180 project capacity will be released by more than 80%, and cost amortization tends to be normalized. On the other hand, the winning price of oil casing this year is basically the same as that of last year, while the probability of a small decline in the price of raw material billet is greater, and the gross profit margin of oil casing will increase. Judging from the company's first-quarter data, which is consistent with our judgment, the company's comprehensive gross profit margin in the first quarter was 9.23%, up 0.47 percentage points from the same period last year.

With the release of 180,140 project capacity, the company's output will rise from 400000 tons in 2011 to 520000 tons, 650000 tons and 750000 tons in the next three years. The company's product sales this year are mainly divided into three directions: 1) the domestic market, according to the winning bid this year, is expected to digest 150000 tons; 2) the international market, the company's global coverage, a large number of customers, it is expected to digest 200000 tons; 3) non-oil well tubes can achieve sales of about 200000 tons this year, including high-pressure boiler tubes, coalbed methane and shale gas pipes, hydraulic pillar tubes, etc.

Investment advice: from 2012 to 2014, the company's EPS is expected to be 0.62 yuan, 0.74 yuan, 0.85 yuan respectively, the current stock price corresponds to 2012 PE23 times, maintain the recommended rating. It is worth noting that the company's first quarterly report revealed that Shouguang Baolong Petroleum equipment Co., Ltd., a holding subsidiary, set up a small loan company, which we think may become the hype theme of the market. Risk hint: macroeconomic growth declines faster than expected