Matters: The company released its annual report on April 11: in 2018, it achieved revenue of 2,038 billion yuan, an increase of 26.41% over the previous year; realized net profit of 314 million yuan, an increase of 26.05% over the previous year; and realized net profit of 292 million yuan, an increase of 29.53% over the previous year. Comment: Performance is growing rapidly, and cash flow has improved markedly. In the second half of the year, we achieved revenue of 1,039 billion yuan, up 13.43% year on year. The growth rate is down from the first half of the year. It is estimated that due to active optimization of the business structure, in fact, gross margin in the fourth quarter reached 56.47%, a record high since listing, a record high of 5.56 pct over the previous year and 13.65 pct over the previous year. In 2018, the company's operating cash inflow was 2,031 billion yuan, up 32.34% year on year; net operating cash flow was 275 million yuan, a sharp increase of 90.31% year on year, a significant improvement over the previous year. The R&D investment was 301 million yuan, accounting for 14.75% of revenue, and R&D expenses were 232 million yuan, an increase of 31.31% over the previous year. The capitalization ratio of R&D expenses has increased, mainly because the next-generation distributed financial core system is in a rapid investment period. In terms of subsidiaries, Jeke Zhicheng achieved revenue of 558 million yuan and net profit of 774.839 million yuan, maintaining steady growth; Lianchuang Zhirong achieved net profit of 226 million yuan, continuing to maintain a strong momentum. Multiple services are growing in a balanced manner, distributed core systems have entered a period of rapid progress, and intelligent IoT has ushered in acceleration. The company has determined financial technology and intelligent IoT as the two major digital strategic upgrade directions. All businesses have achieved steady growth, and the space is worth looking forward to. 1) Fintech services achieved revenue of 1,323 billion yuan, a year-on-year increase of 25.39%, and gross margin of 44.37%, maintaining a high level; on March 7, they jointly released a next-generation financial core system with Ant Financial, which is of great significance to the next stage of business development; recently winning the bid for the Bank of Tianjin DevOps project, creating number one in many industries, is another major milestone in developing the fintech market with Ant Financial. As cooperation with Ant Financial continues to deepen, and a new generation of distributed core systems accelerates, small and medium-sized banks in urban businesses and agricultural businesses are advancing. It is expected that a new round of rapid growth will begin. 2) Smart terminal informatization achieved revenue of 298 million yuan, an increase of 45.10% over the previous year. As the fastest growing business, the gross margin was 39.67%. Based on years of close cooperation with Huawei, the company became one of the few enterprises in China with integrated IoT development and integration capabilities from chips, motherboards, operating systems, clouds, and application scenarios, and launched the next-generation AI computing platform HiHope. It has jointly released 4 high-performance AI computing platforms, including Hikey960 and Poplar, which will benefit from the advancement of Huawei's IoT strategy and release of demand 。 4) Smart energy informatization achieved revenue of 192 million yuan, an increase of 27.36% over the previous year. The main market segment customers are power generation companies, power grid companies, new energy companies, etc., which can provide front-end and back-end services of “IoT sensing” and “data analysis”, which will further benefit from the promotion of power IoT policies. 4) Informatization revenue was 173 million yuan, up 24.96% year on year. Further collaboration between supply chain informatization and the Internet of Things is worth looking forward to... Investment suggestions: Considering the company's rapid cost growth and large investment in new business, we lowered the company's net profit from 2019 to 2020 to 413 million yuan and 540 million yuan respectively (455 million yuan and 588 million yuan before the reduction, respectively). We forecast that the company's net profit in 2021 will be 687 million yuan. The corresponding PE is 25 times, 19 times, and 15 times, respectively. Referring to comparable companies and historical valuations, a target PE of 30 times for 2019 was given, corresponding to the target price of 16.21 yuan, maintaining the “recommended” rating. Risk warning: New business expansion falls short of expectations, risk of impairment of goodwill.