Incident: The company released its 18-year annual report, achieving operating income of 427 million yuan, an increase of 18.08% over the previous year; net profit attributable to shareholders of listed companies was 34.85 million yuan, an increase of 81.79% over the previous year. The performance was in line with expectations. At the same time, the first quarterly report of '19 was released. In 19Q1, revenue of 84.39 million yuan was achieved, an increase of 9.45% over the previous year, and net profit attributable to shareholders of listed companies was 10.27 million yuan, a year-on-year decrease of 21.34 percent.

The construction of a supply chain finance platform led to revenue and profit growth, and the performance was in line with expectations: the company's revenue continued to grow steadily, up 18% year-on-year in 2018. By business sector, chemical trade, network basic services, and network information promotion services grew rapidly, up 23%, 10%, and 43% respectively from the previous year, mainly due to the increase in revenue from the construction business of B2B trading platforms and supply chain finance platforms based on the information platform business. Considering that the gross margin of the company's supply chain finance business is high and the cost ratio is low, the rapid growth of the supply chain finance business will greatly increase profitability. The company's overall gross margin increased 1.47 percentage points to 34.31% year-on-year, while the overall expense ratio decreased 5.3 percentage points to 19.49%. Affected by this, the company's net profit in 2018 also increased sharply by 82% to 84.39 million yuan, and its performance was basically in line with expectations.

Supply chain finance is developing smoothly, and the business model ushered in a major breakthrough: in 2018, the company held traditional online sales and financial recommendation meetings, which allowed more and more core enterprises to go from unfamiliar understanding of online sales and online supply chain finance to actively participating in them. The development of corporate supply chain finance was not very rapid due to financial deleveraging etc. in 2018. The first quarter of 2019 saw signs of acceleration. The company's prepaid accounts at the end of the first quarter increased 33.6% compared to the beginning of the period, and the premiums earned increased 50.5% year-on-year. It reflects the beginning of the recovery and acceleration of the company's core enterprise sales SaaS platform and financing guarantee business. On March 28, the company joined hands with Anhui Bengbu Finance Guarantee Group Co., Ltd. to jointly build the Bengbu Supply Chain Financial Service Center. This model will provide guarantees from a third-party platform, breaking the ceiling of the company's total guarantee amount and bringing about a breakthrough in space. Furthermore, this will also help the company transform its role from taking part of the risk to a pure platform service provider, bringing about an increase in valuation.

Investment advice: Optimistic about the company's drainage effects as the largest e-commerce operator in the domestic industry and a leading integrated B2B operator and the monetization of the performance brought about by boosting supply chain finance, maintain that the company's net profit attributable to shareholders of listed companies in 19-20 is 0.76 million yuan and 121 million yuan respectively. At the same time, net profit for 21 is predicted to be 196 million yuan. Maintain an “increase in holdings” rating.

Risk warning: The development of the Wangsheng financing platform fell short of expectations, the bad debt rate of the Wangsheng financing platform was higher than expected, and the overall valuation level of the market declined.