Key points of the report Event description The company announced its 2017 annual report: the company achieved operating income of 1,784 million yuan, an increase of 6.86% over the previous year; realized net profit attributable to listed companies of 414 million yuan, an increase of 17.60% over the previous year; realized net profit of 346 million yuan, an increase of 5.68% over the previous year; and EPS of 0.55 yuan. Under a high base for incident commentators, passenger flow continued to grow, reducing holdings in Huaan Securities and increasing profits. (1) Revenue growth was driven by an increase in passenger flow and a sharp increase in real estate sales. The scenic area received a total of 3.3687 million visitors throughout the year, an increase of 2.1% over the previous year; ropeways and cable cars carried a total of 6.673 million visitors, an increase of 3.34% over the previous year; it still achieved growth in the G20 free ticket base last year, reaching a record high. Driven by the increase in passenger flow, the company's ropeway revenue and hotel revenue increased 3.39% and 6.23% year on year respectively. Real estate revenue increased by 138.69% year on year according to development progress, and ticket revenue declined slightly by 0.22% due to the increase in free passenger traffic. (2) The company reduced its holdings of Huaan Securities by a total of 10 million shares, and current profit increased by 52.4034 million. The gross margin increased steadily, and the expense ratio continued to decline during the period. Driven by passenger flow growth, the cableway and hotel sectors increased gross margin by 2.05pct and 0.96pct respectively, driving a slight increase in overall gross margin of 0.11 pct to 50.63%; the period fee ratio benefited from a sharp reduction in financial expenses and a slight reduction of 0.08 pct to 18.64%. Separately, the sales expense ratio increased by 0.38pct year-on-year mainly due to incentive fees and advertisements paid to the Huangshan branch of Anhui Civil Aviation Airport to develop the medium and remote customer source market; the management fee rate increased by 0.20 pct due to rewards given to executives for completing business goals; and the financial expense ratio decreased by 0.66 pct due to no loans during the reporting period and a sharp reduction in interest expenses. Profit forecasting and investment advice: Optimistic about the continued growth in performance brought about by the company's internal potential and external expansion. The company signed a cooperation agreement with Huangshan Airport in October. For new or encrypted flights in key passenger markets, it is expected to add about 100,000 remote visitors each year. The development of East Huangshan, connecting Hongcun and Taiping Lake to increase the supply of leisure products, will benefit from a double increase in passenger unit prices and passenger traffic for the Hangzhou-Huang High Speed Rail opening company next year. The company's goal for 2018 is to receive 3.46 million visitors into the mountains, an increase of about 100,000 over the previous year; regardless of Hongcun's merger factors, the EPS for 18 and 19 is expected to be 0.60 and 0.68 yuan/share, respectively, corresponding to the current stock price PE of 22 and 19 times, respectively, maintaining the “increase in holdings” rating. Risk warning: 1. Passenger flow growth fell short of expectations; 2. The development of tourism projects has fallen short of expectations.