(中国石化胜利油田分公司石油化工总厂)

OVERVIEWWewerethesecondlargestBDOproducerinChinaintermsofdomesticsalesvolumein2009withamarketshareofapproximately16.0%,accordingtotheHuajingReportpreparedbyBeijingHuajing,anindependenteconomicinformationresearchinstitution.WealsoproduceGBLandTHF,whichareimmediatedownstreamderivativeproductsofBDO.WerankedfifthinChinaintermsoftotaldesignedBDOproductioncapacityin2009,accordingtotheHuajingReport.InviewofChina’sgrowingmarketforbiodegradablematerialsandleveragingonourexistingexpertiseinBDOproduction,weintendtoexpanddownstreamintoBDO-basedbiodegradablePBSandPBScopolymersproductionandapplyapproximately[●]toconstructthefirstphaseofourPBSproductionfacilities.Pleaserefertotheparagraphheaded“Ourstrategies”underthesectionheaded“Business”inthisdocumentforfurtherdetails.PBSandPBScopolymersarerelativelynewmaterialsinChinaandourGrouphasnohistoricaltrackrecordintheirproduction.WhileweareconfidentofourPBSexpansionplan,thereisnoassurancethatwewillbeabletoproducePBSandPBScopolymersonacommercialscaleoratall.(Pleasealsorefertothesectionheaded“Riskfactors”inthisdocument).BDO,ourprimaryproduct,isanessentialchemicalintermediateusedintheproductionofhighperformancepolymers,solventsandfinechemicals,whicharewidelyusedintheautomotive,electronics,constructionandapparelindustries.GBLhasawiderangeofapplications,includingcosmetics,hairsprays,germicides,tabletbindersandprocessaidsinbeverageclarification.THFismainlyusedasaprecursortopolymersandisoftenusedtoproducePTMEG,whichinturnisareactantformakingotherpolymers.DuringtheTrackRecordPeriod,wesoldourBDO,GBLandTHFproductsprincipallytoPRCmanufacturersofdifferentindustriessuchaschemicals,pharmaceuticalandindustrialelectronics,whichareprimarilylocatedintheEasternregionofChina.Webelievethisdirectsalesmodel,comparedtoadistributorshipsalesmodel,allowsustoobtainfirst-handmarketinformationdirectlyfromthesecustomersandhelpsustobuildlong-termandclosecustomerrelationships.DuringtheTrackRecordPeriod,wedidnotsellourBDO,GBLandTHFproductstoanymanufacturerofPBSorPBScopolymers.Additionally,wehaveneitherdirectlyexportedourproductsnor,toourknowledge,havewesoldourproductstocustomerswhointurnre-sellandexportourproductswithoutfurtherprocessing.WearethefirstamongthecurrentBDOproducersinChinatoemploytheDAVYProcess,accordingtotheHuajingReport.TheDAVYProcess,whichusesmaleicanhydrideastheprincipalrawmaterial,ismoreadvancedandcostefficientthanthetraditionalREPPEProcess,whichusesacetyleneandformaldehydeastheprincipalrawmaterial.TheDAVYProcessallowsustoproducehigh-gradedBDOwithahigherpuritylevelthanthenationalstandardgenerallyadheredbyBDOmanufacturersadoptingtheREPPEProcess.TheDAVYProcessalsoco-producesGBLandTHF,twoofourmajorproducts,andallowsustoadjustthemixamongourthreeproductstoenhancetheflexibilityinfulfillingthecustomers’orders.THISWEBPROOFINFORMATIONPACKISINDRAFTFORM.Theinformationcontainedinitisincompleteandissubjecttochange.ThisWebProofInformationPackmustbereadinconjunctionwiththesectionheaded“Warning”onthecoverofthisWebProofInformationPack.FINANCIALINFORMATION–184–OurcurrentproductionfacilitiesarelocatedinDongying,Shandongprovince,closetoourrawmaterialsuppliersandmostofourmajorcustomers.Inparticular,ourcurrentproductionfacilitiesareadjacenttoSinopecShengliOilfieldBranchPetrochemicalFactory*()(“SinopecShengli”),China’ssecondlargestoilfieldcomplex,whichsuppliestousrawmaterialsincludinghydrogenandn-butanethroughpipelines.Ourproximitytoandlong-termrelationshipwithSinopecShengliprovideuswithaconvenientsupplyofprincipalrawmaterialsandacostadvantageovermanyofourforeignanddomesticcompetitors.ForeachofthethreeyearsendedDecember31,2007,2008and2009andthefivemonthsendedMay31,2010,ourpurchasesfromSinopecShengliaccountedforapproximately11.3%,9.9%,12.7%and32.3%ofourtotalpurchases,respectively.AsattheLatestPracticableDate,ourDongyingBDOproductionfacilityhadadesignedBDOproductioncapacityofapproximately35,000tpa,adesignedGBLproductioncapacityofapproximately17,000tpaandadesignedTHFproductioncapacityofapproximately5,000tpa.WederivesubstantiallyallofourrevenuefromsalesofBDO,GBLandTHF.OurrevenuewasapproximatelyRMB882.7million,RMB883.3million,RMB745.4millionandRMB383.9millionforeachofthethreeyearsendedDecember31,2007,2008and2009andthefivemonthsendedMay31,2010,respectively.OurnetprofitwasapproximatelyRMB146.1million,RMB133.9million,RMB172.1millionandRMB96.9millionforeachofthethreeyearsendedDecember31,2007,2008and2009andthefivemonthsendedMay31,2010,respectively.OurcurrentproductionfacilityislocatedinDongying,ShandongprovinceandasattheLatestPracticableDate,ithadadesignedBDOproductioncapacityofapproximately35,000tpa,adesignedGBLproductioncapacityofapproximately17,000tpaandadesignedTHFproductioncapacityofapproximately5,000tpa.OurprincipalbusinessdevelopmentstrategyistoleverageourBDOproductioncapabilitiesandexpandintoChina’sgrowingbiodegradablematerialsmarket.Since2008,wehavedevotedresourcesinexploringthemarketandthecommercializationpotentialofBDO-basedbiodegradablePBSandPBScopolymerproducts.PBSandPBScopolymersarefullybiodegradablemacromolecula