Key investment points The global oil service market has gradually recovered, and the number of active rigs on land has steadily rebounded. According to agency data, in October 2018, the number of active land rigs in the world had already rebounded 77% from the historic low in May 2016, and the drilling rig market is gradually picking up. Furthermore, with the recovery of oil prices, the size of the global oil services market increased slightly by 5% year on year in 2017. It is expected that the global oil service market size will increase by 7% in 2018, and the oil service industry will begin to recover. The Honghua 6000HP electric fracturing system is currently the world's first electric drive fracturing system. It is the most powerful fracturing system in the world, and has formed a huge advantage in reducing costs and increasing efficiency. At present, Honghua's 6,000HP fracturing pump has gradually been sold in China and the US. The next two years are expected to bring considerable revenue to the company, and it is also a key tool for the company to gain an advantageous position in the field of shale gas services in China. The financial and technical synergy of aerospace science and industry investment is obvious: the most direct optimization effect of aerospace science and industry investment on Honghua Group is the improvement of the cash situation and capital structure. Through the investment of Aerospace Science and Industry, the company received a one-time financing cash inflow of 1,434 billion yuan. Taking advantage of the technical advantages of aerospace science and industry in this area, Honghua has invested heavily in the development of underground tools, including drill-in measuring tools (MWD), rotation-guided drilling systems, and oil service motors, etc., which are expected to be mass-produced soon. We expect the company's revenue in 2018, 2019, and 2020 to be RMB 40.5, 51.6 and RMB 6.22 billion, respectively; net profit from the mother will reach RMB 0.3, 150 million and RMB 390 million. We chose the PB valuation method. Referring to the historical PB-BAND, we gave the company 0.8 times PB in 2018, covering the “buy” rating for the first time. The target price was HK$0.60. Risk warning: Fluctuations in international oil prices; shale gas and other projects not progressing as expected; political risk in overseas markets; risk of safety and work accidents; financial risk.