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Honghua Group Announces 2020 Interim Results

Captures Domestic Industry Opportunities to Achieve Sustainable and Rapid Development

(Hong Kong, August 27, 2020) The globally leading onshore oil rig supplier Honghua Group Limited (Ticker: 196.HK, “Honghua” or “the Company”) today announced unaudited consolidated interim results for the six months ending on 30 June 2020 (“the period”).

During the period, the Company encountered the COVID-19 pandemic and oil price fluctuation. Against such backdrop, the Company’s revenue decreased 11.8% year-over-year from RMB2.048 billion to RMB1.807 billion in the first half of 2020. Gross profit was approximately RMB608 million, representing an increase of 9.1% from RMB557 million for the same period last year. The profit attributable to shareholders of the company decreased by 48.8% from RMB 61 million to approximately RMB 31 million.

BENEFITING FROM FAVORABLE DOMESTIC ENERGY STRATEGY, HONGHUA SEIZED INDUSTRY OPPORTUNITIES TO EXPAND ELECTRIC FRACTURING EQUIPMENT AND SERVICES BUSINESS

During the period, Honghua’s domestic business revenue continued its growth momentum, domestic business hit a new record high in revenue percentage of the Company’s total revenue since its listing, reaching 55%. While closely adhering to China’s energy security strategy and efforts to increase oil and gas reserve and production, the Company prioritized the business segment of equipment and services for unconventional oil and gas. In the first half of 2020, Honghua sold 2 sets of electric fracturing pumps and made the first sale of electric sand-mixing skid. To further expand the electric fracturing equipment product suite, Honghua launched electric sand conveying and storing skids, which were deployed for fracturing operation at various well sites in Sichuan and Chongqing. Benefiting from the rapidly growing demand for domestic unconventional oil and gas and electric fracturing equipment’s high efficacy and eco-friendly advantages, the Company saw tremendous growth in electric fracturing pumping service, while the scope of related business reached a new horizon. In the first half of 2020, the number of electric fracturing pumping services provided by Honghua in the domestic market exceeded 2,000 stages, representing an increase of 70% over the same period last year. Honghua has once again landed fracturing engineering service projects which expanded its business scope from pumping service to a full range of fracturing services, including pumping, sand mixing, and field commend and scheduling. In the first half of 2020, the Company successfully achieved new performance records at multiple platforms. At a platform in Nanchuan, Chongqing, for example, Honghua realized the construction of seven fracturing stages in a single day - the highest single-day record in the Sichuan-Chongqing area. In the shale gas block in Fuling, Chongqing, Honghua’s fracturing pumping service achieved the record of constructing five fracturing stages per day, which accelerated the fracturing speed of a single platform by 70% - achieving the speediest fracturing record in Fuling shale gas field. The rapid growth of the fracturing equipment and services business over the past six months has prompted the Company to build a new business department.

SALES OF DRILLING RIGS AND COMPONENTS WERE STEADILY IMPROVING, MEANWHILE HONGHUA ACTIVELY EXPLORED ITS POTENTIAL FOR OFFSHORE WIND POWER PROJECTS

The drilling equipment and related products business also achieved gratifying results, and the Company once again won new orders in domestic and overseas markets. In the first six months of 2020, Honghua sold 11 drilling rigs, a total sales value of approximately RMB619 million, representing a decrease of 25.3% over the same period last year. In China, the new orders for complete sets of drilling rigs reached RMB280 million. Sales revenue of parts and components totaled RMB470 million yuan, a decrease of 20.1% year-over-year. At the same time, relying on the advantages of the Company’s manufacturing expertise and background as a state-owned enterprise, Honghua landed offshore wind power projects and signed offshore wind power monopiles and conduit frames orders worth RMB580 million. The Company will continue to follow favorable opportunities of China’s offshore wind power policy to improve its business landscape.

OIL AND GAS ENGINEERING SERVICES OVERCAME OBSTACLES OF COVID-19 WHILE OPERATION SAFETY WAS ENSURED

In the first half of 2020, the global oil and gas services industry was in a downturn. Emerging from the impact of the pandemic, 12 drilling crews of Honghua completed approximately 56,280 meters of footage during the period, an increase of 38% over the same period last year. Revenue from engineering services totaled approximately RMB182million, representing a decrease of 5.2% over the same period last year. In the domestic market, the Company firmly implemented safety guidelines in its oil service operations and achieved organic growth. Honghua won bids for directional well service worth approximately RMB30 million. In the international market, Honghua overcame a series of difficulties and achieved growth in operating volume against the adversity.

OUTLOOK

In the second half of 2020, Honghua will continue to seize the industry opportunities arising from increasing oil and gas reserves and production under the national energy security strategy, adopt a flexible and market-oriented operation approach, and strengthen the R&D and sales of core products of drilling and completion equipment. Honghua will drive services associated with equipment and continues to increase the business scale and workload of oil and gas engineering services. At the same time, the Company will ensure satisfactory delivery of offshore wind power projects and pursue subsequent market expansion. Honghua will further enhance cost control, optimize supply chain management, improve cash turnover efficiency, and optimize personnel management system, so as to make new advances amid changes and promote the Company’s high-quality sustainable development.

During the period of low/medium levels of oil prices, the Group will leverage flexible market response mechanisms and endogenous innovation momentum. While consolidating existing businesses, we will actively explore new market businesses, look for new opportunities that lie in crisis, and open up new prospects amid changes.