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　　 Changjiang Securities Liu Yuanrui, Wang Hetao

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　　 Yulong Shares Continuous tracking report.

Event comments.

Upgrading from "complete variety" to "oil and gas transmission pipe" structure: as one of the domestic welded pipe manufacturers with full specifications and large scale, the company has an existing welded pipe production capacity of 890000 tons, including 760000 tons for the headquarters and 130000 tons for Yili, Xinjiang. The company's variety structure mainly includes 390000 tons of spiral submerged arc welded pipe, 200000 tons of longitudinal submerged arc welded pipe, 160000 tons of longitudinal high-frequency welded pipe, and 140000 tons of square and rectangular welded pipe. Based on the existing production capacity, the company has defined the strategic development direction of "structure upgrading" and "national layout" through the implementation of fund-raising projects: 1. Xinjiang Yili subsidiary has obtained the qualification of CNPC's first-class supplier, and is expected to obtain large orders to drive the release of production capacity next year; 2. Steadily promote the implementation of Wuxi headquarters and Sichuan Deyang raised investment projects, both of which are expected to be put into production by the end of next year.

The short-term performance remained stable, and the medium-term relied on the commissioning of fund-raising projects. Benefiting from the commencement of the "12th Five Year Plan" West Third Line project, the gross profit rate of oil and gas transmission pipeline was relatively stable: 1. Due to the qualification certification and past performance barriers in the improvement of CNPC suppliers, the competition in the oil and gas transmission field was relatively stable. In East China, the company's main competitors are Jinzhou Pipeline ； 2. Since this year, the company's oil and gas pipeline orders have been relatively full, and the overall supply and demand pattern of oil and gas pipeline is relatively good; 3. The oil and gas pipeline business did not enjoy the benefits brought by the fall in the price of raw material steel because the relevant orders were priced by cost plus and locking the price of raw materials in advance. Under the influence of the economic downturn, the sales and profits of straight seam high-frequency and square rectangular tube products are poor. Therefore, the oil and gas pipeline business has become a buffer for the company's operating performance this year. On the whole, this year's financial indicators of the company are relatively stable, and it is not likely that there will be large fluctuations in the fourth quarter.

Due to the high cost of raw materials, the company mainly adopts the cost plus pricing model. Under the condition that the prices at both ends of price cost are basically locked, the gross profit per ton of steel of the company's products is basically stable, except for the influence of supply and demand factors. Therefore, the improvement of the company's future performance mainly depends on the gradual release of the production capacity of the high margin varieties of the oil and gas pipeline project invested by raising funds.

It is estimated that the company's EPS in 2012 and 2013 will be 0.37 yuan and 0.44 yuan respectively, maintaining the rating of "prudent recommendation".

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