Submarine equipment manufacturing business further accelerates on our second visit to Jutao's Zhuhai plant, we were pleasantly surprised to find that there was much more production and construction work going on than when we first inspected it six months ago. Among them, many completed and nearly completed submarine equipment, including single nozzles and other submarine connection systems, have been placed near the plant, waiting to be delivered to customers.

In addition to undersea equipment, Jutao is also manufacturing other types of processing equipment, including chemical injection systems, water treatment and transportation systems, and natural gas processing equipment. The equipment will be supplied to overseas projects of large Chinese oil companies, such as China Petroleum & Chemical Corp's Yada project in Iran and Petrochina Company Limited's crude oil and natural gas project in Kazakhstan.

Equity to increase to HK $15 million the group plans to expand its authorised share capital to HK $15 million by adding 8 million common shares. Although the Group does not have the opportunity to issue shares, earnings per share will also record a relatively high double-digit growth driven by the strong growth of undersea equipment. At the same time, in view of the outstanding share options, the management will take into account the interests of shareholders when considering any fund-raising action.

We maintain our forecast of 119% year-on-year growth in 2013, mainly due to a 36% year-on-year increase in sales of oil and gas processing equipment and an increase in the contribution of Penglai Jutao. Based on a forward price-to-earnings ratio of 15 times, the target price is 2.40 yuan, maintaining a "buy".