shengli pipe（1080hk） sector recovering strongly 1 昆仑能源（0135 .docVIP

Shengli Pipe（.HK） BUY Price Target：HK$ Upside：+% Key Data Price (HK$) 0.73 Shares Outstanding(m) 2,480 Market Cap. (HK$ m) 1,810 Free float (%) 37 52 Week Range 1.95/0.5 Controlling Shareholder Yan Tangfeng（41%） BVPS (RMB) 0.79 Asset-liability ratio (%) 6 Price Performance Chart Machinery Analyst： SFC CE No.: AVT518 00852-2899 8342 john.lu@.hk Investment Highlights： ’s revenue comes from SSAW (Spiral Submerged Arc Welding steel pipes). By the end of 2011, Shengli will become the biggest SSAW manufacturer in China with 34% market share. The “12th Five-Year Plan” lays out a “golden five years” for oil gas pipe manufacturers. The length of oil gas pipelines in China is expected to increase by 90% in five years to more than 1.5 million km. We estimate the supply-demand gap of the pipe industry to be over 500,000 tonnes per year, and pipe manufacturers are major beneficiaries. The worst is behind us, a big recovery to come. Operating conditions for Shengli Pipe has improved since May after suffering the worst period in 1H 2011. We expect Shengli Pipe’s performance will improve significantly, boosted by an 80% increase in production capacity this year. Initiate coverage with a BUY rating and a PT of HK$ 0.94. We believe that Shengli Pipe, as China’s biggest SSAW manufacturer, will benefit from the recovery of the oil gas pipe industry. We initiate coverage with a BUY rating and a PT of HK$ 0.94, which represents 6x 2012F PE. Financial Summary Year to Dec 2009A 2010A 2011E 2012E 2013E Turnover (RMB m) 2,999 1,127 1,071 4,569 6,268 Turnover Growth (%) 180% -62% -5% 327% 37% Net Profit (RMB m) 336 89 71 320 500 Net Profit Growth (%) 126% -73% -21% 351% 56% EPS (RMB) 0.31 0.04 0.03 0.13 0.20 CFO per share(RMB) 0.12 -0.08 0.01 0.05 0.08 P/E (x) 1.9 16.7 21.0 4.7 3.0 P/B (x) 0.37 0.76 0.74 0.66 0.57 Dividend per share(RMB) 0.02 0.01 0.01 0.03 0.05 Source: Blo