Performance review Operating cash flow bottomed out and rebounded. Performance fell short of expectations. Hilong Holdings announced 2017 results: revenue was RMB 2,669 billion, up 38% year on year. Net profit was 119 million yuan, a year-on-year decrease of 4%, and a profit of 0.07 yuan per share, lower than our expectations. Revenue for the second half of 2017 increased 12% year over year to $1,413 million, while net profit from the mother decreased by 18% to $54 million. The decline in performance in the second half of the year was mainly due to a month-on-month decline in gross margins in the oilfield services, offshore engineering, and pipeline technology sectors. One good sign is that the company's cash flow from operating activities after interest expenses bottomed out in the first half of 2017, with a net inflow of about 120 million yuan, and accelerated inflows to 136 million yuan in the second half of the year. Also, it is worth noting that the company's sales and administrative expenses are showing an upward trend as revenue recovers. The company plans to pay a dividend of HK$0.01 per share, with a dividend rate of about 1%. The development trend is that orders are abundant, and revenue is expected to accelerate in the next two years. At the beginning of January this year, the company signed a drilling service contract with Oman Petroleum Development Corporation for two drilling rigs in Oman. The contract period is 15 years. We believe that the Oman project is expected to bring considerable revenue and returns to the company's oil service sector in the future. Ongoing orders from the offshore sector will ensure that the company's pipelaying vessels will operate at full capacity until August this year. These orders are expected to generate 200 million yuan in revenue for the company's offshore business (2017 offshore business revenue was 143 million yuan). Drill pipe manufacturing is expected to continue to maintain an operating rate of more than 110% this year. As the share of high-margin non-API drill pipe sales increases, the profit margin of the drill pipe manufacturing business is expected to take the lead in recovering. Capital expenditure budget increases. Management expects capital expenditure to increase to 450 million yuan in 2018 (actual capital expenditure in 2017 was 233 million yuan). The budget is mainly used to put two rigs into operation in Oman and the company's plans to expand OCTG coating production capacity in the US market. Debt ratio control. By the end of 2017, the company's net debt fell 3% year on year to 2,036 billion yuan, and the ratio of net debt to invested capital fell 0.4 percentage points year on year to 37%. Management expects no major financing arrangements in 2018 and hopes that the debt ratio will decline further. Profit forecast Based on the actual gross profit margin for the second half of 2017, we adjusted the 2018 gross margin assumption and lowered the 2018 earnings per share by 12% to RMB 0.09; leaving the 2019 earnings per share unchanged at 0.15 yuan. Valuation and recommendations We maintain the target price of HK$1.8, which corresponds to a net market ratio of 0.7 times and an upward margin of 48%. Maintain recommendation ratings. Risk oil prices fluctuate greatly, exchange rate risk, oil and gas exploration and development expenses are lower than expected.