Main points of investment:

Event: according to the 2018 annual report, the company achieved an operating income of 14 billion yuan in 2018, an increase of 88.2% over the same period last year, and a net profit of 1.19 billion yuan belonging to the shareholders of the parent company, an increase of 40.0% over the same period last year.

The operating efficiency improved significantly, and the net profit after deducting non-profit increased significantly compared with the same period last year. The lower growth rate of the company's performance than the revenue growth rate is mainly due to a sharp decline in net income from investment compared with the same period last year. The company's net profit excluding non-recurring profit and loss was 970 million yuan, an increase of 206.9% over the same period last year, mainly due to a substantial increase in operating income over the same period last year, an improvement in gross profit margin and a decline in the rate of expenses during the period. In 2018, the company's comprehensive gross profit margin increased by 1.7 percentage points compared with the same period last year; the expense rate fell 5.4 percentage points year-on-year.

Real estate contributes more than 80% of its income, and it is still the ballast stone of performance. In 2018, the real estate business contributed 81.1% of revenue, and the gross profit margin of 38.1% was much higher than that of cultural travel and construction and decoration business, which is still the company's basic market. The real estate business settled 11.35 billion yuan, an increase of 84.9% over the same period last year; the sales area was 880,000 square meters, unchanged from the same period last year, and the sales volume was 10.7 billion yuan, an increase of 3.6% over the same period last year. The land layout of the company focuses on urban clusters such as "Beijing-Tianjin-Hebei", "Yangtze River Delta" and "Daya Bay", with low land cost. By the end of 2018, the planned capacity area to be developed was 194.7 square meters, an increase of 37.6% over the same period last year, with rights and interests accounting for 95.5%.

The literature and tourism project has entered the operation stage, and the strategy of "literature and tourism + real estate + finance" has been actively landed. After listing, the company has actively transformed its literature and travel business, and recently a large number of literature and tourism projects have entered the operational stage. Xinhua Lianguan Yao Ancient Town in Changsha was put into operation in August 2018; Xinhua Lianjiuzi Ancient Town in Wuhu and Xinhua Liantong Dream Park in Xining are scheduled to operate in July 2019; Langzhong Ancient City, the 5A scenic spot that received the merger and acquisition, was officially put into operation in January 2019. Jeju, South Korea, Xinhua Union Fairview Villa has been licensed for development. In terms of financial business, the holding subsidiary New Silk Road Wen Lu (00472.HK) acquired 100% of your financial interests by issuing shares in derivative technology; Changsha Bank, which is 8.5% owned by the company, was listed on the Shanghai Stock Exchange in September 2018.

Leverage ratio has declined steadily, and the increase in holdings of controlling shareholders highlights confidence. The asset-liability ratio of 2019Q1 excluding accounts received in advance was 79.6%, down 1.5 percentage points from the end of 2017; the net interest-bearing debt ratio was 197.4%, down 12.8% from the end of 2017, and the leverage ratio improved marginally. The coverage ratio of 2019Q1 cash to short-term interest-bearing liabilities is 77.8%, down 35.5% from the end of 2017. There is some pressure on short-term debt service. The total financing at the end of the period was 24.78 billion yuan, down 7.3% from the same period last year. The company's controlling shareholder, Xinhua United Holdings, accumulated 1.38% of the company's issued shares during the year, highlighting its confidence in the future operation and development of the company.

Profit forecast and investment rating: the company is actively transforming the cultural travel business. As a large number of projects enter the operation period, the cultural travel project will become an important driving force for the company's growth, while the real estate development business is still the company's basic market. We estimate that the company's operating income from 2019 to 2021 will be 15.2 billion yuan, 15.9 billion yuan and 16.3 billion yuan respectively, the net profit will be 1.4 billion yuan, 1.64 billion yuan and 20.0 yuan respectively, and the EPS will be 0.74 yuan, 0.86 yuan and 1.05 yuan respectively, and the corresponding PE will be 6.2x, 5.3x and 4.3x respectively. Maintain the "highly recommended" rating.

Risk tips: 1, the contribution income of culture and travel business is not as expected; 2, the settlement of the project is not as expected.