Event: The company released its 2017 three-quarter report. In the first three quarters, the company achieved revenue of 5.388 billion yuan, an increase of 7.29% over the previous year; realized net profit of 259 million yuan, a year-on-year decrease of 37.31%, in line with Shenwan Hongyuan's expectations. The increase in revenue mainly benefited from the steady progress of the “coal-to-gas” project and the rapid increase in regional gas demand. The decline in net profit of the mother was mainly due to the reduction in pipeline transportation costs. Key investment points: Benefiting from Shaanxi Province's special campaign to combat haze with an iron fist, regional gas demand grew rapidly, and the company's revenue increased year-on-year. In '17, Shaanxi Province vigorously promoted a special campaign to combat haze with an iron fist. Currently, Xi'an City has completed the construction of a 32.249 kilometer gas pipeline network. The urban gasification rate has reached more than 88%, and regional gas demand is growing rapidly. In October of last year, Shaanxi Province lowered gas pipeline transportation costs for non-residents by 0.121 yuan/square meter, and terminal gas sales prices have declined accordingly, further stimulating downstream gas demand. The sharp increase in gas sales volume made up for the impact of lower gas prices, and the company's revenue increased year-on-year in the first three quarters. Currently, coal-to-gas boilers of 20 steam tons/hour and above in Xi'an are gradually implementing “coal-to-gas”. It is expected that all transformation will be completed by the end of October '18. In the future, “coal-to-gas” projects are expected to accelerate the release and drive gas demand growth. In the first half of the year, the company signed a cooperation framework agreement for the “curing haze with an iron fist” gasification project with eight cities in Guanzhong, and the scale of gas sales will be further increased. The company's gross margin declined as a result of the reduction in management and transportation fees. Since September this year, the restructuring of gas prices has affected the company's profit. The company's profit mainly comes from the long-distance pipeline business, and the reduction in pipeline transportation fees directly affects the company's profit level. In the first three quarters, the company achieved a comprehensive gross profit margin of 9.87%, down 4.19 percentage points from the same period last year, which in turn led to a year-on-year decrease in net profit. According to a recent announcement, starting September 1, the price of natural gas for non-residents across the country will be reduced by 0.1 yuan/cubic meter. The settlement price for non-residents of CNPC Western Corporation has been adjusted accordingly, but at the same time, the company has also cancelled its original preferential gas price policy for the company. At the same time, in order to implement the natural gas value-added tax reduction regulations, the company's natural gas pipeline transportation and urban gas distribution prices have both declined. The new policy is expected to reduce the company's total profit by 11 million yuan. The fixed increase plan was revised a second time, the total amount of capital raised was reduced, and the scale of pipeline network coverage was increased. In October '17, the company revised its fixed increase plan once again. It plans to issue no more than 220 million shares on a non-public basis, and reduce the total amount of capital raised to 1.26 billion yuan. The funds raised will be used for natural gas pipeline projects such as the Han'an Line and Zhonggui Line, Shangluo to Shangnan, Meixian to Longxian, Shangluo to Luonan, and Ankang to Xunyang. After the project is put into operation, the company will add more than 488 kilometers of long-distance pipelines, increasing the annual gas transmission capacity from 13.5 billion m3 to 14.5 billion m3. Invest in the establishment of urban gas companies and accelerate the pace of regional gas integration. According to the latest announcement, the company plans to invest in urban gas assets in the Yan'an region (Yanchang, Yanchuan, Yichuan, and Zhidan counties) to which its wholly-owned subsidiary Shaanxi Gas belongs, to establish Yan'an Natural Gas Co., Ltd., with a registered capital of 150 million yuan for the new company. The establishment of the new company will accelerate the company's integration with other natural gas companies in Yan'an city and further expand the company's layout in the urban gas industry. Profit forecast and rating: Taking into account the reduction in pipeline transportation costs and value-added tax adjustments, we maintain that the company's net profit for 17-19 is 3.76, 4.30, and 504 million yuan, corresponding earnings per share of 0.34, 0.39, and 0.45 yuan/share, respectively. The PE corresponding to the current stock price is 25 times, 22 times, and 19 times respectively. As the leader in the Shaanxi pipeline network, the company is expected to benefit from the downstream consumption growth brought about by “coal-to-gas” and the advancement of natural gas market-based reforms in the future. The rating was downgraded to “increased holdings.”