In 2018, the company achieved operating income of 4.75 billion yuan, an increase of 60% over the previous year, and attributable net profit of 1.01 billion yuan, an increase of 17% over the previous year. The performance was in line with expectations. In 2019, the company's gas sales volume is still expected to increase significantly, the number of connected users will remain high, and the number of connections to non-residents will increase rapidly. At the same time, construction of LNG terminals and receiving stations will continue to advance steadily, and extended mergers and acquisitions will continue to gain strength, promoting the company's performance to maintain a continuous growth of 20%-30% in many ways. The current valuation corresponds to a profit of 11 times in 2019, maintaining the “Highly Recommended - A” rating. The basic situation of the annual report: In 2018, the company achieved operating income of 4.75 billion yuan, an increase of 59.9% over the previous year, realized imputed net profit of 1.01 billion yuan, an increase of 17.3% over the previous year, and realized net profit of 980 million yuan after deduction, an increase of 14.8% over the previous year. The performance was in line with expectations. 2018 Profit Distribution Plan: In 2018, it is planned to pay 5 yuan in dividends for every 10 shares (tax included), with an increase of 4 shares for every 10 shares. The goals of the 2019 business plan: the company plans to achieve revenue of 6.5 billion yuan and net profit of 1.2 billion yuan. Comment: 1. Revenue has increased dramatically. Among them, natural gas sales revenue has increased significantly, accounting for more than 50%. The connection business has maintained its growth momentum, and the business structure has been gradually optimized. In 2018, the company achieved revenue of 4.75 billion yuan, an increase of 59.9% over the previous year. Among them, natural gas sales revenue was 2.41 billion yuan, up 121% year on year; gas connection was 1.44 billion yuan, up 26.8% year on year; gas appliance sales were 760 million yuan, up 14.1% year on year; and heating and other businesses were 0.8 billion yuan. Judging from the segmented business revenue, the significant increase in natural gas sales revenue was the main reason for the sharp increase in revenue. After the completion of the village-to-village connection in 2017, it contributed to a sharp increase in the company's gas sales volume in 2018. In 2018, the company achieved a total gas sales volume of 970 million square meters, driving the share of gas sales revenue to over 50%. At the same time, the company's connection business continued to grow. The number of connected users completed in 2018 was 330,000, an increase of about 20% over 2017. 2. Gas sales volume has risen sharply, but the gross margin of gas sales has declined sharply due to insufficient contracted gas volume. In 2019, gas volume checks will be completed to return the price difference; in the connection business, the gross margin has declined slightly due to the high proportion of connections between villages and villages. The gross margin of both businesses has room for recovery in the future, and the expense ratio is still well controlled. In 2018, the company's comprehensive gross profit margin was 31.4%, down 10.55 percentage points from the previous year. On the one hand, it is related to changes in revenue structure, and the share of gas sales business with relatively low gross margins has increased dramatically; on the other hand, it is also related to the decline in the gross margin of various business segments themselves. Among them, the gross margin of the gas sales business was 8.3%, down 4.7 percentage points from the previous year. This gross margin level is an abnormal level of profitability, mainly due to the low contract gas volume in 2018, only the contract usage in 2017 (4.7 billion square meters), and the actual gas consumption in 2018 showed a double increase. Therefore, the price of the auctioned gas volume other than the contract volume was higher, as high as 3.83 yuan. Some of the volume of coal to gas directly supplied to rural areas was verified in 2019. The actual data will be verified in 2019. If purchased, the price difference will be accounted for in 2019 and returned to the company. Therefore, in the future, the gross margin of the company's gas sales business is still expected to return to normal levels. At the same time, the gross margin of the company's gas connection business was 72.6% in 2018, down 5.5 percentage points from the previous year, mainly because the gross margin of the village connection business is lower than that of the city connection business. In the future, as the company's urban connection volume gradually picks up and the village connection business volume gradually declines, the gross margin of the company's connection business is still likely to rise. In terms of net interest rate, in 2018, the company's net sales profit was 21.3%, down 7.9 percentage points from the previous year. The decline was less than the decline in gross margin. Mainly, the company's operating expenses in 2018 were still well controlled. Among them, the sales expense ratio was 1.8%, up 0.4 percentage points year on year; management expense ratio was 3.5%, down 1.5 percentage points year on year; financial expense ratio was 0.5%, up 0.1 percentage points year on year; and asset impairment loss/operating income was 0.7%, down 1.2 percentage points year on year. 3. The profit achieved by the extension M&A project is relatively good and cash flow is abundant. It will continue to expand in 2019. The company completed the acquisition and merger of Jingzhou Gas and Fuyang Gas for nearly two years. From a business perspective, the two external M&A companies are doing well, and it is expected that they will be able to successfully complete their profit promises and achieve growth. Jingzhou Gas: Achieved net profit of 93.1 million yuan in 2018, slightly exceeding the performance promise of 92 million yuan, and is expected to achieve net profit of 120 million yuan in 2019. Fuyang Gas: In 2018, it achieved operating income of about 1 billion yuan, net profit of about 1-120 million yuan, actual consolidated revenue for 4 months, consolidated revenue of 360 million yuan, and net profit of more than 50 million yuan. In 2019, Fuyang Gas is expected to achieve a net profit of about 150 million yuan. Currently, the company's balance ratio is 48%, there is plenty of cash on hand, and capital conditions are relatively good. In 2019, the company will continue to increase its expansion and expansion efforts, and it is also expected that the company's profits will continue to increase. M&A capital plan: The company has sufficient capital. Currently, the balance ratio is less than 50%, and interest-bearing liabilities are 12-13%; cash flow from operating activities also continues to contribute, with 100 million cash in Jingzhou and 2-3 billion in cash in Fuyang, so there will be sufficient cash to support mergers and acquisitions. Currently, it can be purchased with loans or own capital. Target choices for external mergers and acquisitions: the Beijing-Tianjin-Hebei region, the Pearl River Delta, the Yangtze River Delta, and regions with high populations are all relatively important expansion directions. County-level cities in Beijing-Tianjin-Hebei are also interested and value radiation effects. 4. The company's future development trends in various business segments and the 2019 forecast that Baichuan Energy's post-listing positioning is to expand and strengthen the Beijing-Tianjin-Hebei core regional market. It began to lay out Beijing-Tianjin-Hebei in 2002, and predicts that the Beijing-Tianjin-Hebei region will develop rapidly in the future. It is an urban gas company with an early layout in Beijing-Tianjin-Hebei. After the first pipeline was completed in 2005, intensive cultivation was carried out around the main business. In 2012, the general secretary proposed the Bohai Rim strategy, began focusing on the Yangtze River Delta, Pearl River Delta and Bohai Rim, and launched the “Three Horizontal and Three Vertical” high-pressure plans. The government authorized Baichuan to carry out special natural gas plans for all administrative regions. The deployment of township gas began in 2014 to focus on the collaborative development of Beijing-Tianjin-Hebei Province, increase pipeline network construction efforts, and increase market control and market share. Baichuan's development foundation is to do a good job in Beijing-Tianjin-Hebei. The future revolves around Beijing-Tianjin-Hebei. On the one hand, good outreach, and on the other hand, refinement and detail. Baichuan's advantage lies in the distribution capacity of Beijing-Tianjin-Hebei Province, which will provide support for performance growth. In the future, the company's gas sales volume is still expected to increase dramatically, the number of connected users will remain high, and the number of connections to non-residents will increase rapidly. At the same time, construction of LNG terminals and receiving stations will continue to advance, and extended mergers and acquisitions will continue to gain strength, promoting the company's performance to maintain a continuous growth of 20%-30% in many ways. 1. As the urbanization process progresses and the population moves, the gas connection business will not decline rapidly. It is just that the growth rate is slowing down, it is still sustainable, and the number of connections to non-residents will increase rapidly; while the company's gas sales revenue will continue to increase, and the business structure will continue to be optimized. The connection business will not decline rapidly, but the growth rate will slow down, and the number of connections for non-residents will increase rapidly: in 2017, the company's connection business experienced a policy restructuring of village communication, adding more than 300,000 new connecting customers in a short period of time. In 2018, the village access ended; in 2019-2020, all village links were completed. However, in 2019-2020, the number of connected users will not decrease rapidly, and it will remain high. It is expected that in 2019, the Beijing-Tianjin-Hebei urban area will connect 100,000 households, villages will connect tens of thousands, Fuyang, and 3-4 million households in Jingzhou. The current number of potential connected households will not be lower than in 2018, and will remain above 300,000. Moreover, the average level of connection fees and profit margins for urban residents is higher than that of village-to-village users. At the same time, the number of non-resident connections is also expected to increase rapidly. In the connection business in 2018, the number of non-resident users increased by 170% and revenue by about 84%. The growth in non-resident user connections was significantly faster than the growth in residential user connections. In the future, the connection revenue from non-resident users is expected to continue to grow rapidly. Gas sales will continue to increase dramatically, the share of gas sales revenue will continue to increase, and the gas consumption of non-residents will increase dramatically in the future: in 2018, the company's gas sales volume has grown rapidly, and after villages are connected to gas, it was discovered that rural areas are very dependent after being connected to gas. The gas consumption per household is much higher than in cities. The utilization rate of gas to coal in rural areas is very high. Last year, the connection utilization rate was over 90%, and the gas consumption of rural users was much higher than expected. In the future, gas sales revenue is expected to maintain a 20% increase, which is higher than the average growth rate of the industry. At the same time, gas consumption by non-residents with high profitability in gas sales will also increase dramatically. It is expected to continue to grow by 40-50% in 2019, achieving gas sales volume of 14-1.5 billion square meters. 2. The construction of LNG terminals and receiving stations will steadily advance the LNG terminal planned by the company. Site selection for the LNG terminal planned by the company was completed in October 2017, reported to the country in June 2018, and is currently being actively connected. In the planning, progress is a little faster than expected. Site selection conditions: 1. Inland, no reclamation; 2. The conditions of the existing shoreline meet all levels of demonstration; 3. Subsequent land selection is about 100 acres of land; 4. The distance between the contact station and the valve chamber of the nearby central line of China is no more than 20km, and the distance from nearby highways and highways does not exceed 20km; (port conditions are relatively good). At the beginning of October, the Traffic Regulation Authority conducted a special investigation and gave it high recognition. The final situation was subject to the national announcement. In 2019, the company will continue to accelerate the Suizhong LNG terminal project, complete project approval procedures and commencement of construction work, strengthen exploration and development of upstream oil and gas fields, and actively seek high-quality oil and gas projects. Combining all aspects of business, we expect that subsequent company revenue will maintain an annual growth rate of about 20-30%, while accelerated extrinsic mergers and acquisitions will bring more growth growth. The company will achieve imputed net profit of 1.33 billion yuan and 1.60 billion yuan respectively in 2019-2020. The current market value corresponds to the 2019 PE valuation of about 10.5 times. The valuation is low, and it has a high cash dividend ratio, maintaining a “highly recommended-A” rating. The target price is 19.3 yuan based on 15 times the PE valuation in 2019. 5. Risk warning: the risk of changes in the connection fee policy; the risk of a decline in the gross margin of gas sales.