The core view is that the gross margin of the product has declined, and the performance is slightly lower than expected. The company released its 2017 three-quarter report. The first three quarters achieved revenue of 1,141 billion yuan, a year-on-year increase of 9.65%, and net profit of 186 million yuan, a year-on-year decrease of 8.99%, corresponding to an EPS of 0.36 yuan. The performance was slightly lower than the market and our expectations. The decline in net profit was caused by various factors, including an increase in the cost ratio, changes in non-operating income (government subsidy revenue), etc. Among them, the most important one was the decline in product gross margin. In the first three quarters, the overall gross margin of the company's products declined markedly, from 42.69% in the same period last year to 40.14% (down 2.55pp). Lay out sales channels and deepen the “instrument+reagent” business model. Over the past six months, the company has vigorously strengthened the construction of sales channels. Following holding 51.22% of Xi'an Shenke Biotechnology Co., Ltd.'s shares in the first half of the year, the company announced on August 30, 2017, that it will invest 153 million yuan to acquire 55% of the shares of Guangdong Xinyou Biotechnology Co., Ltd. Specifically, Xi'an Shenke is the largest dealer in Shaanxi Province, and Guangdong Xinyou is a first-level market agent for Hitachi Biochemical products in Guangdong, Guangxi, Hunan, and Hainan. The company has always insisted on the integrated development of “instruments+reagents”. The expansion of sales channels will further deepen this business model and enhance competitiveness. Continuing to promote the “endogenous growth+epitaxial expansion” strategy, the prospects are improving. Since 2013, the company's strategy has been defined as “endogen+extension”. On the basis of sorting out the business structure and divestment of non-core businesses, the company focuses on R&D while strengthening epitaxial expansion. In terms of endogenous business, sales of fully automated biochemisters are good (Guizhou Province won the bid for 416 units in the third quarter, with a total amount of 25.66 million yuan); the chemiluminescence business is being actively promoted (including its own luminescence instruments, TGS series products, and agent Biokit products). In terms of epitaxial expansion, there have been actions in terms of products and channels, including overseas acquisitions of Italian TGS, holding of Xi'an Shenke, and Guangdong Xinyou. We believe that the company is expected to make great strides under this strategic role. Financial forecasts and investment recommendations We expect the company's net profit from 17-19 to be 2.47/2.83/326 million yuan respectively, corresponding to EPS of 0.48/0.55/0.64 yuan. Referring to the comparable company valuation, the company was given 38 times PE in 17 years, corresponding to the target price of 18.24 yuan, maintaining the company's “increased holdings” rating. Risk warning: If the integration of the company's mergers and acquisitions targets does not create synergy, it will adversely affect the long-term development of the company.