Key investment points: The company released its 2014 three-quarter report. From January to September, the company achieved revenue of 512 million yuan, up 21.76% year on year, net profit of 78.79 million yuan, up 12.23% year on year, net cash flow from operating activities of 57.02 million yuan, down 1.69% year on year, EPS was 0.27 yuan, up 12.50% year on year. Among them, 2014 Q3 achieved revenue of 168 million yuan, a year-on-year increase of 24.92%, after deducting non-net profit of 23.62 million yuan, an increase of 4.19% over the previous year. At the same time, the company announced a net profit growth range of 5% to 30% for the full year of 2014. Report Summary: Both the parent company and Yongzitang maintained relatively rapid revenue growth, and the net profit growth rate was lower than the revenue growth rate. The company's revenue during the reporting period was $512 million, up 21.76% year on year. Among them, the parent company's revenue was 436 million, up 21.36% year on year, and Yongzitang's revenue was about 76 million, up about 19% year on year. On the parent company's side, due to media events in the third quarter of last year, the overall base of Simotang was relatively low. It is expected to grow rapidly during the same period this year, with revenue estimated to exceed 300 million in the first three quarters. In terms of specifications, since the company's old factory area is facing transformation, we expect the 10-pack simo soup to grow relatively fast. On the side of Yongzitang, the company made personnel and sales adjustments, adopted a marketing model similar to Simo Tang, increased marketing investment, and achieved a relatively rapid year-on-year increase in revenue. In the first three quarters, the company's revenue growth rate was 22%. The net profit growth rate was 12%, and the net profit growth rate was lower than the revenue growth rate. The main reason was that (1) the gross margin of the leading product, Simotang, fell by about 3% year on year, leading to a decline in profitability; (2) the subsidiary Yongzitang added management expenses by about 11 million, causing management expenses to increase a lot year over year. Gross profit margin was stable month-on-month and declined year-on-year, while net sales margin declined year-on-year. In January-September, the company's comprehensive gross margin was 70.61%, which remained stable from month to month, while the year-on-year decline was 4 percentage points. This is related to the decline in gross margin due to the increase in the cost of the leading product, simo-tang. In terms of the cost ratio for the period, it increased by 1 percentage point from month to month and decreased by 3 percentage points year on year. Among them, the sales expense ratio dropped significantly from 47.54% in '13 to 41.10% now. This is related to the company building a sales team ahead of schedule. Changes in gross margin and period expenses have led to a drop in the company's net sales margin from 17% in the same period last year to 15.84% at present. The main business is expected to maintain steady growth, and epitaxial development is worth looking forward to. On the company headquarters side, although new production capacity has begun to be released, the company's old factory area has also begun to be renovated, and the overall production capacity release will take some time. Furthermore, the overall bidding process fell short of expectations, so the leading product, Simotou Oral Liquid, is expected to maintain steady growth, and the probability of explosive growth is small. The subsidiary Yongzitang has certain advantages, but marketing was weak in the past, so marketing reform will be a top priority. The company management attaches great importance to this. In the future, they will consider drawing on the successful marketing experience of Simotang for grafting, but overall marketing adjustments will continue for some time, so it is unlikely that Yongzitang's short-term performance will grow rapidly. While doing well in its main business, the company will also not lose the opportunity to carry out epitaxial development. The subsidiary Hanson Health Industry (Hunan) Co., Ltd. has completed industrial and commercial registration, and corresponding medical services and high-quality varieties of traditional Chinese medicine are expected to be an important direction for the company's epitaxial development. Profit forecasting and ratings. As a modern brand traditional Chinese medicine company, based on the company's strong sales capacity, varieties such as Simo Soup and Tianma Sanming Brain are expected to maintain steady growth. At the same time, the company has established a two-wheel drive strategy for endogenous growth and epitaxial expansion, and epitaxial mergers and acquisitions are worth looking forward to. EPS for 14-16 is expected to be 0.46, 0.56, and 0.70, respectively, and the corresponding PE is 40, 33, and 26 times, respectively, maintaining the purchase rating. Risk warning. Yongzitang's consolidation fell short of the expected risk.