Event: Baichuan Energy released its 2018 annual report. In 2018, the company's operating income was 4.75 billion yuan, up 59.9% year on year; net profit was 1.01 billion yuan, up 17.3% year on year; and EPS was 0.98 yuan. The increase in gas purchase costs put pressure on the fourth quarter results. The overall performance was in line with expectations: China's natural gas supply and demand situation in 2018 was still tight. The company's profit for the fourth quarter was under pressure due to factors such as price increases from upstream suppliers such as CNPC and the procurement of high-priced LNG. The gross profit margin of the 2018Q4 company was 34.6%, down 7.1 and 5.1 percentage points from the previous year and month on month respectively; the company's net profit margin was 17.2%, down 16.4 and 9.7 percentage points from the same period last year. The net profit of the 2018Q4 company fell 40.3% year on year, but considering the base effect, the overall performance was in line with expectations and the dividend ratio was impressive: the company disclosed the 2018 dividend plan, with a cash dividend of 0.5 yuan per share (tax included), and also used the capital reserve fund to increase share capital by 4 shares for every 10 shares. According to the dividend plan, the company's cash dividend ratio in 2018 was over 50%, and the dividend rate was about 3.6% based on the current market value. Under conditions where the company's performance continues to grow relatively rapidly, a high percentage of dividends is invaluable. The expansion of epitaxial expansion is expected to become a new growth point for the company's performance: the company successively acquired Jingzhou Natural Gas and Fuyang Gas Company in 2017 and 2018, and achieved business expansion through epitaxial mergers and acquisitions to drive performance growth. Fuyang Gas combined on 2018-08-10 and contributed 48 million yuan in net profit in 2018. Considering the timing of the merger, Fuyang Gas can still contribute to increased performance in 2019. In addition, the company's annual report revealed that in 2019 it plans to continue to expand new business regions, acquire high-quality project companies, and accelerate the national market layout. We believe that with the declining coal-to-gas dividend in Hebei, epitaxial mergers and acquisitions are expected to become a new growth point for the company's performance. Profit forecast and investment rating: According to the company's coal-to-gas progress and extended mergers and acquisitions, the company's net profit in 2019 and 2020 was raised to $1.2 billion and $1.29 billion respectively ($1.14 billion and $1.23 billion respectively before adjustment), adding $1.40 billion to net profit in 2020. Changes in share capital due to dividends (capital gains from the Provident Fund) and repurchases are not considered yet. It is estimated that the company's EPS from 2019 to 2021 will be 1.17, 1.25, and 1.35 yuan, respectively, and the corresponding PE will be 12, 11, and 10 times, respectively, maintaining the “increase in holdings” rating. Risk warning: The progress of “coal-to-gas” is slower than expected, and the implementation of subsidies is lower than expected; the progress and results of the company's outsourcing mergers and acquisitions projects are lower than expected; the risk that connection fees will be lowered or cancelled; the risk that gas sales revenue will fall short of expectations due to a further decline in gas distribution costs, etc.