Investment highlights: 1. The incident company announced that, as a limited partner, it intends to participate in the establishment of the Zhongguancun M&A parent fund with a pledge of 150 million yuan from its own capital to participate in the establishment of the Zhongguancun M&A parent fund. The total size of the fund is RMB 12.25 billion. 2. Our analysis and judgment (1) Participate in the Zhongguancun M&A parent fund and increase mergers and acquisitions in the future. Beijing Zhongguancun M&A parent fund investment center (limited partnership) (hereinafter referred to as “Zhongguancun M&A parent fund” or “this fund”) is a market-based industrial M&A parent fund jointly initiated by Beijing Zhongguancun Dahe Capital Investment Management Center (limited partnership) (hereinafter referred to as “Dahe Capital”) and the Haidian District Industrial M&A Guidance Fund, Beijing Haidian District State-owned Assets Management Co., Ltd. The Zhongguancun M&A parent fund focuses on supporting leading Zhongguancun technology enterprises participating in the fund to carry out strategic mergers and acquisitions, supporting them to continue to lead China's industrial upgrading under the dual role of technological innovation and capital, and actively seeking to become an international enterprise group serving the world while maintaining a foothold in the domestic market. According to the company announcement, the partners in Zhongguancun's M&A parent fund after this investment also include Beijing Haidian District State-owned Assets Investment and Management Co., Ltd., Shenwan Hongyuan Securities Co., Ltd., China Post Securities Co., Ltd., Beijing Energy Group Co., Ltd., Jincheng Capital Management Co., Ltd., Tsinghua Holdings Co., Ltd., and Jiawo Group Co., Ltd. By participating in the Zhongguancun M&A parent fund, the company will expand the business scale of the company's current major business segments through mergers and acquisitions, and will further extend the company's industrial chain, help promote the company's group development, and enhance the company's overall competitiveness. Furthermore, participating in investing in the Zhongguancun M&A parent fund can further broaden the company's investment and financing channels. Through government guidance and market-based operations, and utilizing the professional advantages and asset management capabilities of Dahe Capital Fund management, the mergers and acquisitions have good growth and development prospects. (2) Signing a trade framework agreement with China Overseas Energy to expand business areas and help increase performance. Recently, the company and China Overseas Energy have completed the signing of the “Strategic Framework Agreement between Hengtai Aipu and China Overseas Energy Co., Ltd.” (hereinafter referred to as the “Framework Agreement”) in Beijing. According to the provisions of the framework agreement, initially the two sides will mainly trade petroleum-related products such as fuel oil and lubricants, and other chemical products, and domestic trade. In the future, the two sides will gradually expand the variety of trade and extend it to international trade. Hengtai Aipu will directly purchase related products from upstream refineries and chemical plants and then supply them to Chinese and overseas energy to complete the entire trade process. Each trade business cycle ranges from 1 month to 3 months. The two sides have agreed on a trade amount of 1.5 billion dollars a year, and the execution period of the contract is three years. Before this agreement is terminated, any party may apply for an extension, and after a friendly agreement, this agreement may be extended for a period of 3 years each time. According to the company's announcement, if the project is successfully implemented, it will expand the company's overall revenue scale in the future and have a certain positive impact on the company's performance. (3) Integrate existing resources and promote clean energy and environmental protection in the future to achieve group development. The company integrates existing resources and technology to build three sectors with great potential for development: Tedo Drilling Company RRDSL and West Oil joined forces to form Onishi Oil Engineering Company to provide oilfield field services; integrate Hengtai Apu's original G&G business and sales capabilities with Boda Ruiheng's G&G business and sales capabilities, and establish Hengtai Aipu Research Institute to improve efficiency; establish a cloud technology company, based on Internet+oil and gas exploration and development technology, combined with big data and cloud computing, to develop the VR industry Technical and non-technical VR technology for the industry. In terms of environmental protection business, the company acquired Xinjinhua and Sichuan Oil Design. In the future, it can promote non-pipeline gas supply solutions to small domestic villages and towns, improve the energy structure of villages, and reduce air pollution. At the same time, the company invested 10 million yuan to invest in Heilongjiang Shengda Environmental Construction Engineering Co., Ltd., combining the technical advantages of “three chemical water” such as petrochemicals, coal chemicals, pharmaceuticals and chemicals, etc., to promote and implement distributed and intelligent solutions for village sewage in the future. Through cloud duty, low cost, cloud management, and the Internet of Things, the sewage problem in villages and towns can be solved effectively. (4) Lay out the natural gas application industry chain. The prototype of an integrated energy service group has now taken shape. After successfully acquiring shares, Hengtai Aipu will hold 95.07% of the shares in Xinjinhua and 90.00% of the shares in Sichuan Oil Design. Xinjinhua's main business is the development and manufacture of centrifugal compressors, and it is at an advanced level in various application segments: Xinjinhua is at an advanced level in the field of synthetic ammonia centrifugal compressors in China; it has made a breakthrough in the long-distance pipeline compressor industry for natural gas transportation, and its self-developed 8.3 MW gas and natural gas transmission compressor unit has been operating steadily in Pakistan's natural gas pipeline. During the “13th Five-Year Plan” period, as the country stepped up its efforts to control smog and haze, natural gas as an alternative to coal combustion will develop rapidly. According to the NDRC plan, by 2020, the share of natural gas consumption in primary energy consumption will reach more than 10%, the utilization amount will reach 360 billion cubic meters, and the compound annual growth rate of natural gas consumption in 2015-2020 will reach 14%. Centrifugal compressors are used for pipeline transportation and pressurized liquefaction in the oil and gas field. In the future, as domestic natural gas consumption increases year by year, demand for centrifugal compressors is expected to maintain steady growth. Sichuan Oil Design's main business includes three types of design services: gas field collection and transportation, long-term oil and gas transportation, and urban gas. In 2015, the length of China's natural gas pipeline network was about 100,000 kilometers, and the total scale of the long-term pipeline network is planned to reach 150,000 kilometers by 2020, with an average annual increase of about 8%. The acquisition of Xinjinhua and Sichuan Oil Design will help the company's industrial layout enter the oil and gas transportation and oil and gas equipment manufacturing industries. It is an important measure for the company to expand upstream and downstream of the industrial chain, expand asset scale, and enhance profitability, and will help the company achieve its goal of a comprehensive energy service group. (5) Acquire Western Petroleum Union, Anterui Energy, and Chengdu Omec to build a comprehensive international oil service company. In April 2013, the company acquired Anterra Energy Inc. (hereinafter referred to as “Anterui”) 27.6% of the shares. Atari is committed to oil and gas development in Canada's western basin. The main production blocks are “Brighton” and “Bakken”; the company also has oil and gas processing plants to support the operation of the company's midstream industry. Through strategic investment in Anterui, it will help the company explore the US and Canadian oil field service markets; at the same time, through in-depth research on the Atari oilfield block, there will be an opportunity to promote the company and its member enterprises to provide first-class, large-scale technical services for similar large-scale oil field blocks, thus further improving the company's profitability and level. In October 2013, the company acquired the remaining 49% of the shares of Chengdu Xiyou United Petroleum & Gas Engineering Technology Co., Ltd. and achieved a wholly-owned holding of Westoil United. West Petroleum Joint's main business is oil and gas field product equipment integration services, engineering project contracting and services. Through a wholly-owned holding of West Petroleum, the company added engineering technical service capabilities for oil and gas fields, enhancing the company's competitiveness and market share in the oil service industry. Considering the previous acquisitions of Spartek Systems Inc., and Langfang Xinsaipu, the company can already provide a variety of services in the oil service industry chain, from oil and gas exploration data interpretation and processing, logging to oilfield engineering, etc., and initially became a comprehensive international oil service company. In January 2016, the company announced that Chengdu Omec had completed the listing and public transfer on the national SME share transfer system. The stock code is 835563. The listing of Europe and America on the New Third Board is conducive to improving its incentive mechanism, stabilizing and attracting talents, and enhancing core competitiveness; at the same time, it can also introduce new strategic investors, providing a foundation for the long-term development of Europe and America. (6) Acquire 51% of Zhongying Anxin's shares and enter the “digital oilfield” industry. In 2013, Boda Ruiheng, a wholly-owned subsidiary of the company, used 186.66 million yuan of self-raised capital to acquire 51% of the shares of Zhongying Anxin Technology Service Co., Ltd. (hereinafter referred to as “Zhongying Anxin”). Zhongying Anxin promised that the net profit after tax attributable to owners of the parent company after deduction of non-recurring profits and losses in 2013, 2014, 2015 and 2016 will not be less than RMB 28.15 million, RMB 37.5 million, RMB 47.5 million, and RMB 49.5 million, respectively. Zhongying Anxin mainly provides the oil and gas industry with a full range of information and related technical services with production safety as the core and the goal of integrating the two modernizations. Including the design, construction, construction, operation, and maintenance of various terminal facilities such as upstream oil and gas fields, midstream oil and gas pipelines, LNG terminals, and downstream refining, etc., information-based management and production safety operation guarantee services throughout the life cycle. Zhongying Anxin has a number of core proprietary technologies and patented technologies developed independently, and has proposed 2D and 3D integrated technology for digital oil and gas fields, breaking the monopoly of foreign companies in this industry in terms of technology and market. This acquisition will help Boda Ruiheng further expand its business areas and customer resources, strengthen the oil and gas technology service business sector, and enhance its competitiveness and market share in the oilfield technology service industry; at the same time, it will help the company enter the “digital oil field” and achieve the goals of the Energy Group. In December 2015, Zhongying Anxin was officially listed and publicly transferred on the New Third Board. The stock code is 834728. (7) Acquire Boda Ruiheng to enhance the company's exploration and development software technology service-related business. In March 2012, the company acquired 51% of Beijing Boda Ruiheng Technology Co., Ltd. (hereinafter referred to as “Boda Ruiheng”); in October 2013, the company acquired the remaining 49% of Boda Ruiheng's shares. Currently Boda Ruiheng is a wholly-owned subsidiary. The company and Boda Ruiheng are also providers of oil service software and related services. After the company wholly owned Boda Ruiheng, Boda Ruiheng stopped selling products with a strong competitive relationship with Hengtai Aipu, and added new agent varieties from the perspective of product complementarity, etc., improving the coordination and uniformity of the products of the parent and subsidiary companies. At the same time, the company granted Boda Ruiheng the agency rights for the two SiMO2D/3D and SeisFast products in some market regions, helping to expand the company's product sales channels. This acquisition will help increase the company's share in the oil and gas exploration and development software technology service market, optimize the company's management structure, enable the company to achieve consistent interests with its holding subsidiary Boda Ruiheng, and help the company find high-quality targets for overseas oil and gas exploration and development software. (8) Oil and gas exploration software technology is leading in the country. Through mergers and acquisitions, the traditional main business of companies entering the oil service instrument and equipment manufacturing industry is software technology services for oil and gas exploration development, specifically for R&D and sales of oil and gas exploration and development software. These software and related technologies are used to provide seismic data processing, comprehensive interpretation, and reservoir development plan design services for petroleum companies' exploration and development work, helping oil companies reduce exploration risks, improve exploration success rate and resource extraction efficiency. The technical strength of the company's oil and gas exploration and development software is at the leading level in the country. In particular, in terms of exploration and development technology for complex oil and gas reservoirs, the company has many unique technologies. The software developed by the company covers the main aspects of exploration and development such as seismic data collection, design, processing, interpretation, comprehensive reservoir research, and reservoir modeling, and has unique technology and software products in geological mapping, etc. 3. The investment proposal expects the 2016-2018 EPS exam preparation to be 0.05/0.13/0.18 yuan, and PE preparation for the exam is 188/79/55 times; if the equity transfer of Zhongying Anxin is considered, the 2016-2017 performance is expected to be 1.07, 189 million yuan, and PE is 67/38 times. The company laid out the oil service and natural gas operation industry chain through acquisitions during the slump in the industry. Subsidiaries such as Zhongying Anxin and Chengdu Omec have already been listed on the New Third Board. In the future, they will benefit from a rebound in crude oil prices and continued growth in domestic natural gas consumption, maintaining a “recommended” rating. Risk warning: Crude oil prices fell sharply, and post-acquisition consolidation fell short of expectations.