Investment highlights There was a strong recovery in 2018, and the offshore industry completed its divestment. The company's revenue in 2018 reached 4.205 billion yuan, up 93.26% year on year, with strong growth. Among them, the revenue from the drilling rig, parts and oil service business reached 23.3 million, 15.6 million and 319 million yuan respectively, up 456%, -1.3% and 90.1% year on year, respectively. Operating profit improved markedly, and net profit turned a loss into a profit, reaching 82 million yuan. In October 2018, the company sold 51% of Jiangsu Ocean's shares. The buyer also bears the underlying debt of about 2 billion yuan and related interest. The completion of the divestment of the offshore sector by the company will reduce the pressure on the company's debt. The parts and oil field business has broad prospects, smoothing the cyclicity of drilling rigs. The company's 6,000 horsepower fracturing pump has broken through significantly, from zero sales in 2016 to 535 million yuan and 716 million yuan in 2017 and 2018. China's shale gas extraction volume in 2018 was 11 billion square meters, and it is planned to reach 30 billion square meters in 2020. As domestic shale gas extraction accelerates, the company's oilfield service sector has broad prospects in the future, and the development of components and oilfield services will greatly smooth out the cyclical nature of the company's drilling rigs. Our view: Honghua Group (0196.HK) introduced China Aviation Technology as its largest shareholder in 2017 at a price of HK$0.77 per share, and divested the offshore sector with serious losses in 2018. In the future, business and technical collaboration between the company and science and industry will gradually become apparent, and the company's financing costs will drop due to its backing on the Science and Industry Group. We expect the company's revenue for the 2019-2021 fiscal year to be 5,025, 6,216 and 7,868 million yuan respectively, main business operating profit of 510, 725 and 1,000 million yuan respectively, net profit of 208, 353 and 534 million yuan, basic EPS of 3.93, 6.67 and 10.1 points, respectively, and P/E corresponding to the stock price on March 29, 2019, 15.1, 8.9 and 5.88 times, respectively. Maintaining the “buy” rating, the target price increased from HK$0.6 to HK$0.6 0.86 HKD. Risk warning: International oil prices have fallen sharply; projects such as shale gas have not progressed as expected; risk of safety accidents.