In the first quarter of 2012, the company achieved operating income of 2.0879 million yuan, a year-on-year decrease of 12.01%; loss of operating profit of 2.1051 million yuan (7.0908 million yuan in the same period last year); loss of net profit attributable to owners of the parent company of 2.1051 million yuan (7.261,400 yuan for the same period last year); and basic earnings per share - 0.01 yuan/share. High fees eat away at the company's profits. During the reporting period, the company was affected by the increase in raw materials and direct labor costs. The gross margin fell 11.28 percentage points to 35%, and the cost ratio increased 29.59 percentage points to 55.96% year on year during the period. Among them, the sales expenses ratio increased 20.38 percentage points, mainly due to a significant increase in advertising expenses, business promotion expenses, and market promotion sample costs. The high rate of expenses for the period consumed the company's operating profit, resulting in the company's operating profit margin of -9.53% for the current period. We believe that the company's period expenses fluctuate greatly from quarter to quarter, and it is estimated that it can remain around 50% throughout the year. Compared with the company's profitability, its operating costs are still high. The growth rate of the main products declined, and the growth of second-tier products accelerated. The main reason for the decline in the growth rate of the company's main product is the increase in sales price of the product, the 1g specification rose 35.53% year on year, and the 2.2g specification rose 39.05% year on year. Although the cost increase put a lot of pressure on the company's products, the increase in price inhibited the increase in sales. The company's second-tier varieties grew rapidly. Among them, strengthening the waist and kidney pills, Xiaomi pills, increased by 114%, Gujing ginseng and ginseng pills increased by 38.7%, anti-inflammatory and choleretic tablets increased by 56.25%, capsules for vomiting and stomach pain increased 35.23%, and dual-ingredient throat lozenges increased by 77.57%, but these varieties had a low base and relatively small revenue impact on the company's profits. The investment income contribution of Jinsha Pharmaceuticals has increased, and the company's dependence on it has increased. Sands Pharmaceuticals' main products are 7 cm tablets, laxative tablets, and menstrual blood activators. They are all base types. Benefiting from the expansion of basic drugs, Sands Pharmaceuticals' revenue increased by 48.62% over the same period last year. The company holds 35.53% of Jinsha Pharmaceutical's shares. The stable operating performance of Sands Pharmaceuticals not only contributes stable investment returns to the company, but is also the main source of the company's profits. In 2011, the company's investment income accounted for 111.89% of operating profit, and the company is highly dependent on the performance of Sands Pharmaceuticals. Profit forecasting and investment ratings. We expect the company's EPS for 2012-2013 to be 0.10 yuan and 0.11 yuan. Based on the closing price of 8.44 yuan on April 19, the corresponding dynamic price-earnings ratio is 84 times and 78 times. The company's main products are growing steadily, but the operating costs are high, maintaining the company's “neutral” investment rating. Risk warning. 1) The risk of price fluctuations of Chinese herbal medicines; 2) The risk of excessive dependence on the return on investment of Sands Pharmaceuticals; 3) The risk that the company's operating costs are high.