Incident: US President Trump recently signed a tax reform bill. Since 2018, the US corporate income tax rate has been permanently reduced to 21%. New energy sources bear the brunt of the benefits. Comment: Benefiting from US tax reform, performance will increase markedly. On December 22, US President Trump signed the tax reform bill at the White House. According to the latest tax system, corporate income tax will be directly and permanently reduced from the current tax system's maximum of 35% to 21%. The newly signed bill will soon be officially implemented in 2018. Xinchao Energy is the first to benefit. Based on the average production of 34,000 b/d and 45,000 b/d in 18-19, after the implementation of the new tax system, the corresponding performance elasticity of every 5 US dollars in oil prices will reach 310 million yuan and 4.2 billion yuan, respectively. Production returned to normal. Production reached a record high in October, and volume prices rose sharply in the fourth quarter. The company Midland Basin (MosCreek Corporation) officially merged to contribute results on August 1. Due to the force majeure of the hurricane, Q3 performance fell short of market expectations, and well drilling was slow. However, since September, according to third-party monitoring data, the company's production and operation activities have returned to normal. In October, the company's net output exceeded 30,000 b/d. Coupled with the good performance of WTI oil prices in the fourth quarter, there was an overall trend of sharp increases in volume and price. The three-year goal has been set, and the company's overall goals require rolling mergers and acquisitions to achieve them. The company has defined its overall goals for the next three years in terms of additional resource reserves, capital expenditure, and equivalent production. The goal is to target leading international companies in the same industry and become an international medium to large oil company. The company has made it clear that it will continue to acquire high-quality oil and gas resources at the appropriate time. Compared to Midland's block reserves, the company plans to acquire 2 equal-volume targets in the next two years. The number of production wells and oil and gas equivalent production should include expectations for subsequent mergers and acquisitions. From a capital expenditure perspective, there is reason to think that the timing of mergers and acquisitions should be in '18 and '19. Looking ahead to oil prices 18 years from now, a sharp rise in volume and price is expected to significantly improve performance. Although Xinchao Energy was not one of the first domestic private companies to enter US shale oil, many latecomers took the lead. At the end of 2015, the Midland oil field in the core area of the Permian Basin was strategically acquired at a total cost of only 24 US dollars/barrel, laying the foundation for becoming a medium to large shale oil company in one fell swoop. The Midland block well drilling plan for the second half of '17 exceeded expectations, and there is still about 3/4 of the area to be developed in the north, so there is great potential for increasing production. We are optimistic about oil prices after the second half of '18. If there is a breakthrough, we can fully enjoy the effects of the sharp rise in volume and price. Investment suggestions: increase oil prices to 47 US dollars/barrel in '17, achieve oil prices to 51 US dollars/barrel in '18, and maintain oil prices unchanged at 55 US dollars/barrel in '19. Assume that ancillary financing is completed in 18 years. Since the beginning of 2018, the company's income tax rate has been reduced to 21%. Based on good business conditions in the fourth quarter, we raised our profit forecast for 2017 from the three-quarter report. The company's net profit for 17-19 is estimated to be 390 million yuan, 1.98 billion yuan and 2.91 billion yuan respectively, and EPS is 0.06, 0.27, and 0.40 yuan respectively. The current price corresponds to PE 64 times, 13.5 times, and 9.2 times. Considering strong expectations of rolling mergers and acquisitions, it maintains a “highly recommended-A” rating. Risk warning: International oil prices have fallen sharply; financing progress has fallen short of expectations.