Honghua Group recorded revenue of RMB 4.21 billion in 2018, a year-on-year increase of 93.3%, slightly better than expected; the company successfully turned a loss into a profit, with net profit of RMB 82.29 million, slightly better than expected. Benefiting from a strong recovery in oil prices and a large inflow of orders, the operating profit margin increased to 8.1%. The company's order flow is abundant and offshore assets have been successfully divested. To reflect our positive view of the company, we raised our 19/20 paving earnings per share forecast from RMB 0.04/0.07 to RMB 0.05/0.08, predicting earnings per share of paving to RMB 0.09 in '21. We raised our target price from HK$0.47 to HK$0.82, corresponding to a price-earnings ratio of 15.0 times in '19. The current price has room to rise by 17.6% from the target price, and we maintain our increase rating. Steady growth in performance. Benefiting from the recovery in oil prices, land drilling rig sales increased 455% year over year to RMB 2,327 billion, and oilfield service revenue increased 90% year over year to RMB 319 million, driving total revenue growth of 93.3% year over year to RMB 4.21 billion in 2018. As of the end of '18, the average single order amount is now over 100 million US dollars. The order targets are mainly high-margin high-end drilling rigs (30%-35% gross profit) and oil service package projects (25%-35% gross profit), which is expected to drive further growth in future performance. Improved business performance. We have noticed a significant increase in the efficiency of the company's operations in '18. Management expenses in 2018 accounted for 11.2% of total revenue, down from the same period last year (25.5%). Sales expenses accounted for 7.4% of total revenue, down from the same period last year (10.7%). The improvement in operating efficiency led operating profit to turn a loss into a profit, and the company recorded an operating profit of RMB 339 million. Although the company's balance ratio increased by 3 percentage points to 61% year on year, interest expenses in 2018 decreased 29.6% year on year due to the central enterprise background of science and engineering, the majority shareholder, and changes in the RMB exchange rate. Offshore sector for sale. Honghua Group announced that it has signed an agreement with Jiangsu Hongjiangding Company to sell 51% of its shares in the offshore sector to it. Under the marine sector, Jiangsu Ocean and Shanghai Ocean are each priced at RMB 1, and FSP and Tyco are each priced at 1 US dollar. After completing the equity transfer, the offshore sector still needs to repay shareholder loans totaling about RMB 2.1 billion to Honghua. We expect that the sale of the offshore sector will bring the company a net profit of RMB 70 million. In the future, the offshore sector will transition to LNG equipment manufacturing. As the LNG market continues to heat up, this will also bring new opportunities to Honghua. Maintain an increase in holdings. The company's order flow is abundant and offshore assets have been successfully divested. To reflect our positive view of the company, we raised our 19/20 paving earnings per share forecast from RMB 0.04/0.07 to RMB 0.05/0.08, predicting earnings per share of paving to RMB 0.09 in '21. We raised our target price from HK$0.47 to HK$0.82, corresponding to a price-earnings ratio of 15.0 times in '19. The current price has room to rise by 17.6% from the target price, and we maintain our increase rating.