In 2010, the company achieved an operating income of 2.704 billion yuan, an increase of 30.27% over the same period last year; an operating profit of 2.77 billion yuan, an increase of 2.21% over the same period last year; a net profit of 277 million yuan belonging to the owner of the parent company, an increase of 2.92% over the same period last year; and fully diluted earnings per share of 0.69 yuan. The distribution plan is 1.5 yuan (including tax) for every 10 shares.

The company is a high-quality enterprise specializing in the manufacture and service of oil drilling and production equipment, and its main products include oil casing, sucker rod, oil pump, pumping unit and other oil exploitation related equipment and components. At present, oil casing products are the main source of business income of the company.

Limited by the external environment and its own production capacity, the performance in the past two years is relatively lackluster. According to the company's financial data, after an explosive growth of more than 50 per cent a year in 2003-08, the company's performance in 2009 and 2010 was relatively lacklustre. We believe that there are two main factors restricting the company's performance growth: first, from the external environment, due to the impact of the financial crisis, the oil drilling and production industry as a whole entered a relative downturn in the second half of 2008; second, from the internal point of view, the company has been facing capacity bottlenecks since 2009, and the capacity utilization rate of the main product casing has been close to 100%. Therefore, the systematic decline of the industry as a whole caused by the financial crisis and the company's own capacity bottleneck constitute the two major constraints of the company's lacklustre performance in the previous two years.

The release of production capacity coincides with the recovery of the industry, and the company's performance is expected to grow at a high speed again. In 2011, the two major constraints that suppress the growth of corporate performance have undergone essential changes. According to the statistics of the industry association, the output of petroleum machinery and the financial data of the oil special equipment industry have begun to rebound in the second half of 2010, and show a continuous upward trend. Combined with our recent communication with a number of oil machinery enterprises and relevant experts, we believe that the recovery trend of the oil machinery industry has been established. In an environment of overall improvement in the industry, the company's A-share IPO project began production at the end of 2010 and will release 60 per cent of its new capacity in 2011. As a result, the two factors that restricted the company's performance growth in the previous two years no longer exist. We believe that in the context of the improvement of the industry and the substantial increase in its own production capacity, the company is expected to usher in rapid performance growth again.

The company's customer base is stable and the export momentum is good. In the field of domestic oil exploration, the company's main customers include three major oil groups. In addition, the company is the first pipe enterprise in China to enter the field of coalbed methane mining, and has also become a high-quality supplier of Zhongyu Energy and other enterprises in recent years. The company has formed a relatively stable supply relationship with the main downstream for many years. In the first quarter of this year, the company has successively won the oil casing orders of CNOOC and Petrochina Company Limited, showing a good sales momentum. From the perspective of exports, after years of market development, the company has successfully opened up emerging markets such as Central Asia, the Middle East and Southeast Asia, and has established good cooperative relations with a number of foreign inventories and oil field service companies. judging from our previous field research, the current export momentum is very good, and the production plan for export orders in the first half of the year has been full, and we expect that exports will account for more than half of the total for the whole year.

Profit forecast and investment rating: we expect the company's EPS from 2011 to 2013 to be 1.20,1.50 and 1.75 yuan, respectively. Calculated with the latest closing price of 24.18 yuan, the corresponding dynamic PE is 18.8,16.2 and 13.8 times, respectively. We maintain the company's "buy" investment rating.