Matters: The company announced that in its 2017 annual report, it achieved operating income of 1,992 million yuan in 2017, an increase of 50.83% over the previous year, and achieved net profit of 307 million yuan, an increase of 40.41% over the previous year, and EPS of 0.4351 yuan.

The profit distribution plan for 2017 is to distribute 0.3 yuan (tax included) for every 10 shares, without using capital provident funds to increase the share capital.

Ping An's point of view:

The merger of Shanghai Yitong helped the company achieve high performance growth in 2017: According to the company's 2017 annual report, the company achieved operating income of 1,992 billion yuan in 2017, an increase of 50.83% over the previous year, and achieved net profit of 307 million yuan, an increase of 40.41% over the previous year. The company's revenue in 2017 and the net profit of the parent grew rapidly, mainly because Shanghai Yitong, which was acquired by the company's holdings in 2017, was included in the scope of consolidation in April 2017. In terms of gross margin, the company's gross margin in 2017 was 49.46%, down 8.58 percentage points from the same period last year. Mainly because with the company's continuous deployment in the digital communication field, the share of digital communication business revenue in the company's revenue increased from 43.17% in 2016 to 61.08% in 2017, while the gross margin level of the digital communication business was relatively low, thereby lowering the company's overall gross profit margin. In terms of period fee rate, the company's fee rate during 2017 was 33.19%, down 8.43 percentage points from the same period last year, indicating that the company continues to strengthen cost control.

The company management software business is growing steadily: The company management software business includes e-government business and group control business. Among them, the e-government business is the focus of the company's management software business. In 2017, the company's e-government business achieved revenue of 553 million yuan, an increase of 2.58% over the previous year; the group's management and control business achieved revenue of 213 million yuan, an increase of 3.33% over the previous year. The company's management software business achieved steady growth in 2017. In August 2017, the “13th Five-Year Plan” National Government Information Technology Project Construction Plan (hereinafter referred to as the “Construction Plan”) was officially promulgated, marking that China's government informatization has entered a new stage of innovation and development. We believe that with the gradual implementation of the “Construction Plan”, China's e-government industry will usher in a new round of development opportunities. Benefiting from the development of the industry, the future development of the company's e-government business is expected to accelerate.

The company continues to expand in the field of digital communication: in April 2017, the company completed the acquisition of 51% of Shanghai Yitong's shares. In April 2018, the company further completed the acquisition of the remaining 49% of Shanghai Yitong's shares. Up to now, Shanghai Yitong has become a wholly-owned subsidiary of the company. Since 2015, the company has continued to improve the company's layout in the field of digital communication through active outreach mergers and acquisitions (Yiqilian Technology, Ruiyi Hengdong, Shanghai Yitong). The company now has intelligent mobile advertisement distribution capabilities, overseas brand marketing capabilities, social marketing capabilities, and mobile information service capabilities based on big data analysis, and the effects of integrating the digital communication sector are beginning to show. According to iResearch's data, China's online marketing industry is currently booming. In 2012-2019, China's Internet advertising market size CAGR was 35%. With the increasing improvement of the company's business layout in the field of digital communication, the future development of the company's digital communication business is worth looking forward to.

Profit forecast and investment advice: According to the company's 2017 annual report, we expect the company's EPS for 2018-2020 to be 0.56 yuan (the original forecast value was 0.65 yuan), 0.71 yuan (the original forecast value was 0.86 yuan), and 0.90 yuan respectively. The PE corresponding to the closing price on April 17 was about 23.1, 18.3, and 14.5 times, respectively. The company is a leading enterprise in China's e-government industry. In the context of the industry facing a new round of development opportunities, the future development of the company's e-government business is expected to accelerate. Since 2015, the company has initially achieved a strategic layout in the field of digital communication through a series of mergers and acquisitions. Benefiting from the high popularity of the online marketing industry, with the increasing improvement of the company's business layout in the field of digital communication, the future development of the company's digital communication business is worth looking forward to. We are optimistic about the company's future development and maintain our “recommended” rating for the company.

Risk warning: (1) The development of the company's e-government business falls short of expectations: the development of the company's e-government business is greatly influenced by the company's government industry clients' budgets in terms of informatization construction. If the company's government industry customers fluctuate in the informatization budget, there is a risk that the company's e-government business will not develop as expected; (Inc.) The company's digital communication business development falls short of expectations: although the company has formed a relatively complete digital communication business layout, competition in the digital communication industry is fierce. If the company's digital communication business subsidiaries cannot continue to lead or integrate technology and services The results are poor, and there is a risk that the company's digital communication business will not develop as expected; (3) the risk of loss of goodwill: The company laid out the digital communication field through active extension mergers and acquisitions, and the merger of Yiqilian Technology, Ruiyi Hengdong, and Shanghai Yitong generated 1,271 million yuan of goodwill, which is equivalent to 4.14 times the company's net profit of returning to the mother in 2017. If Yiqilian Technology, Ruiyi Hengdong, and Shanghai Yitong experience a sharp decline in business conditions in the future due to increased competition in the industry, there is a risk that the company's goodwill will be damaged.