Event: The company released its 2018 annual report. In 2018, the company achieved operating income of 4.753 billion yuan, an increase of 59.90% over the previous year, and realized net profit of 1,006 billion yuan, an increase of 17.29% over the previous year, slightly lower than Shenwan Hongyuan's expectations of 1,073 billion yuan. Investment points: The performance in 2018 increased sharply year on year, and high gas prices and costs at the beginning of the year dragged down the gross profit margin for the whole year. Benefiting from “coal-to-gas” in the Beijing-Tianjin-Hebei region since the second half of 2017, and Jingzhou Gas and Fuyang Guozhen Gas were combined at the end of 17 and August '18, respectively. In 2018, the gas sales business achieved revenue of 2,404 billion yuan, an increase of 120.87% over the previous year; completed gas connections to 330,000 households and achieved connection revenue of 763 million yuan, an increase of 26.82% over the previous year; gas equipment sales revenue was 763 million yuan, up 14.05% year on year. Affected by the high base effect in the second half of 2017, the performance growth rate for the third and fourth quarters of '18 all slowed. Due to the increase in the share of gas sales business with low gross margin and high gas source costs during the heating period in early 2018, the company's comprehensive gross margin in 2018 was 31.55%, a significant decline from 42.15% in 2017. However, on a quarterly basis, the comprehensive gross margins for Q3 and Q4 in 2018 were 39.73% and 34.65%, respectively, which is a significant improvement from the beginning of the year. The acquisition of 100% of Fuyang Guozhen Gas's shares has been completed, and the extended M&A strategy is expected to expand further. Following the acquisition of 100% of Jingzhou Gas's shares in November 2017, the company completed the acquisition of 100% of Fuyang Guozhen Gas's shares in August 2018. Fuyang Gas became a wholly-owned subsidiary of the company, and the national layout was further expanded. The resident population of Fuyang City is close to 10 million, and the gasification rate is only about 10%, so it has a large market space. In the context of clean energy, China's demand for natural gas is growing rapidly. Guozhen Gas is the largest natural gas supplier in Fuyang, Anhui, and will directly benefit from the increase in the local gasification rate. As of the end of 2018, the company's balance ratio was 48.25%. Coupled with the strong ability of cash flow in the gas business to recover, it strongly supports the company to maintain an efficient pace of mergers and acquisitions. At the same time, the current tight gas supply in China has caused a large number of local gas companies to show losses, providing favorable and objective conditions for the company's external mergers and acquisitions. The company is expected to further expand its revenue scale and regional layout through acquisitions. The Suizhong LNG receiving station project is progressing rapidly, and it is of strategic significance in the context of tight gas sources. Currently, China's demand for natural gas continues to grow at a high rate. Due to insufficient domestic production, external dependence on gas sources continues to rise, and LNG has become the main force for insurance and supply. The company plans to invest 3.5 billion yuan to build an LNG terminal project in Suizhong with an annual turnover of 2.6 million tons to guarantee gas demand in the company's business area. At present, the project has been included in the “Special Plan for Construction Facilities of Natural Gas Storage in Liaoning Province” (2018-2022) and reported to the National Development and Reform Commission for review. The company is actively promoting project approval and preparation work to begin construction within the year. Profit forecasts and ratings: Referring to 2018 results, we lowered our net profit forecasts for 19-20 to 1,496 billion yuan and 1,413 billion yuan (before adjustments were 13.53 billion yuan and 1,443 billion yuan), adding 1,537 billion yuan to the 2021 profit forecast, corresponding to EPS of 1.26, 1.37, and 1.49 yuan/share, respectively. The current stock price corresponding to PE is 11, 10, and 9 times. As a gas leader in Beijing-Tianjin-Hebei, the company benefits from the continuous advancement of the “coal-to-gas” plan. The current gas sales volume in the supply area is expected to maintain rapid growth, and the extended merger and acquisition strategy is expected to further expand the company's development space and maintain its “buy” rating.