Hilong tips stronger growth with expansion abroad

Hilong Holding Limited, the Chinese oilfield equipment manufacturer and service provider, is stepping up its overseas expansion and expects to see its overseas income to account for over half of its total revenue this year for the very first time.

The company is China's largest and world's second largest supplier of drill pipes and OCTG coatings (for protecting drill pipes and tubes), Amy Zhang Shuman, executive director and chief strategy officer at Hilong Holding, told China Daily.

A Hilong brand drilling rig in operation in Ecuador. [Photo/China Daily]

Zhang said Hilong currently owns 30 percent share of China's drill pipes market and two third shares of the country's OCTG coatings market. The company hopes to maintain its leading position in the domestic market while expanding its market share overseas.

"It is difficult for us to take up more market share in China, as there is just no way that PetroChina and Sinopec will purchase (oilfield equipments) only from our company," Zhang said, while pointing out that the international market for its products is much broader.

The company recorded 929.7 million yuan ($148.97 million) revenue in the first half of this year, of which, 55.5 percent was earned from the domestic market, and hopefully, starting from this year, its revenue from overseas would overtake the domestic market to become its major revenue source, said Zhang.

Currently, around 50 percent of Hilong's drill pipes are sold outside China and the company is still striving for more overseas market share.

In the first half, the company sold over 3,000 tons drill pipes in South America with price discounts, as part of its strategy to enter the market.

"South America is an important oil development area in the future and we really want to be one of the suppliers in that market," said Zhang.

Meanwhile, the company is also increasing its OCTG coatings production capacity in oil-producing countries like Russia and Canada.

Zhang mentioned that the construction of its coating plant in Russia has been completed, and that it is expected to commence mass production before the year end. He also revealed that the construction of the company's OCTG coating service plant in Edmonton, Canada is still in progress and it is anticipated to become operational by the beginning of next year.

"By next year, roughly one third of our OCTG coatings would be produced and sold in overseas markets," she said.

Aside from drill pipes and coating materials, Hilong's earnings from oilfield services has also grown robustly and all the revenue is from overseas.

In the first half, the company's revenue from the oilfield services increased 39.7 percent to 244 million yuan, accounting for 26.2 percent of Hilong's total revenue over that period.

Zhang said by providing oilfield services to its international customers, like Shell and Schlumberger, Hilong's brand recognition has been enhanced and that helped boost its drill pipes and coating materials sales.

Although the growth of the Chinese economy has slowed down for several quarters and there is still a lot of uncertainties in the global economy, Hilong's businesses have barely been affected, she said.

For the six months ended June 30, the company's profit attributable to equity owners was 130.2 million yuan, increasing by 10.3 percent compared with the same period in 2011.

"The oil industry is relatively stable despite the economic downturn," said Zhang, "and along with the recovery of the global economy, the demand of energy is set to rise again."

Zhang is also very confident about Hilong's performance for the year, as it is backed by a solid order book.

"All the drill pipes we can make until the end of this year have already been booked, and the orders for OCTG coatings have also been piling up to the end of the first quarter of 2013," Zhang said, adding that, "the growth momentum is still very strong."

She pointed out that traditionally, its revenue from the second half of the year usually accounted for 60 to 70 percent of the full year's revenue, as the drilling operations are usually more active in the third and fourth quarter than in the first half.

Affected by the lower profit margin due to prices of drill pipes and oilfield services segment, Hilong's gross profit margin decreased to 40 percent in the first half from 44.2 percent a year ago.

Zhang believes that its full year gross profit margin will be around 41 percent, at around the same level as last year.

"But we will continue to enhance our product mix, developing high margin products to maintain our gross profit margin above 40 percent in the future."

sophiehe@chinadailyhk.com