Event: on October 12, the company issued a performance forecast for the first three quarters of 2019, which is expected to achieve a net profit of 3000-37 million yuan belonging to the parent company during the reporting period, turning a loss into a profit compared with the same period last year.

(1) the capital expenditure on oil and gas exploration and development has increased, and the recovery of the industry has led to the growth of corporate demand. In 2019, the capital expenditure budgets of the three major domestic oil companies have all increased, and the market of the oil service industry has picked up.

Affected by this, the company has a strong demand for oil machinery and equipment, and orders have increased substantially. The company expects net profit of 3000-37 million yuan in the first three quarters of 2019, which is expected to reverse losses compared with 36.5177 million yuan in the same period last year, of which the net profit in the third quarter is expected to be 1100-15 million yuan. Sinopec's capital expenditure budget for exploration and development in 2019 was 59.6 billion yuan, an increase of 41.23% over the same period last year. Petrochemical machinery is the only oil and gas technology and equipment enterprise under China Petroleum & Chemical Corp Group, and the landing of upstream capital expenditure will effectively drive the company's performance growth.

(2) the country promotes the implementation of the energy security strategy, and the company is expected to benefit from unconventional oil and gas exploration. On October 11, Premier Li Keqiang chaired a meeting of the National Energy Commission to study the further implementation of the new energy security strategy. The meeting once again stressed the need to strengthen domestic oil and gas exploration and development, promote the increase of reserves and production, and improve the ability of oil and gas self-sufficiency. With the continuous promotion of the energy security strategy, Petrochina Company Limited and others have promoted the "Seven-year Action Plan." it is expected that the three major oil companies will increase investment in exploration and development.

The company ploughs the oil technology equipment industry, bit drilling tools and fracturing equipment is in a leading position in China, and is expected to benefit from the development of domestic unconventional oil and gas resources for a long time.

(3) the construction of pipeline infrastructure is accelerated, and the business of oil and gas steel pipes is expected to grow rapidly. at present, the lack of infrastructure construction and interconnection of pipe networks in China restricts the development of natural gas industry. During the two sessions in 2019, the NDRC proposed to set up a national pipe network company to promote the independence of oil and gas trunk pipelines and achieve the separation of pipeline transportation and sales. The company's Shashi Steel Pipe Factory is one of the leading domestic oil and gas pipeline manufacturing enterprises, mainly supplying the national key oil and gas pipeline construction, such as "gas transmission from west to east", "Sichuan gas transmission to east", "Sino-Myanmar pipeline" and so on. In the first half of 2019, the company's oil and gas steel pipe business revenue increased by 144.35% compared with the same period last year, accounting for 38.55% of the total revenue of the main business. Since 2019, the company has successfully signed important steel pipe contracts such as Qingning Line. With the acceleration of pipeline infrastructure construction in China, the company's steel pipe business is expected to achieve rapid growth.

Profit forecast and investment advice: the company currently has abundant orders on hand, coupled with the temperature of the oil service industry and the acceleration of oil and gas pipeline infrastructure construction, the company's annual performance is expected to achieve rapid growth. We maintain our profit forecast for the company and estimate that the net profit for 2019-2021 will be 1.39 million yuan and 0.33 billion yuan for 2019 and 2021 respectively, and the "overweight" rating will be maintained.

Risk factors: international oil price fluctuation risk, exchange rate risk, international trade environment risk.