Event: The company released its 2017 annual performance report. During the reporting period, it achieved revenue of 1,611 billion yuan, a year-on-year increase of 15.37%, and net profit of 219 million yuan, a year-on-year increase of -5.77%, corresponding to an EPS of 0.43 yuan. The core view is that performance is in line with expectations, and multiple factors have led to a decline in net profit. During the reporting period, the company's revenue increased 15.37% year on year, but net profit fell 5.77% year on year (down 3.87% year on year after deduction), in line with market and our expectations. The main reasons for the decline in the company's net profit are: 1) a decline in comprehensive gross margin; 2) an increase in various expense ratios; 3) an increase in income tax expenses; and 4) changes in non-operating income (government subsidy income). Deepen the layout and stick to the “instrument+reagent” model. Currently, the company has a complete product line, including biochemistry, immunity (chemiluminescence), molecules, etc. On November 24, the company invested in Aoran Biotech to further enrich molecular diagnostic agents; on December 7, the company signed a cooperation agreement with Hitachi (Shanghai) Co., Ltd. to carry out nationwide biochemical instrument (reagent) sales cooperation. In terms of channels, since the beginning of the year, the company has successively completed control of Xi'an Shenke Biotech and Guangdong Xinyou Biotech. Among them, the former is the largest dealer in Shaanxi Province, and the latter is a first-level agent for Hitachi Biochemical products in the four southern provinces. We believe that the company has always adhered to the “instrument+reagent” collaborative development strategy. A rich product line and channel expansion will greatly enhance the company's competitiveness. The strategy of “endogenous growth+epitaxial expansion” promotes the stable development of the company. On the basis of sorting out the business structure and divesting non-core business, the company focuses on R&D and strengthens external expansion. In terms of endogenous business, sales of fully automated biochemisters are good; chemiluminescence business is being actively promoted (including in-house luminescence instruments, TGS series products, and agent Biokit products). In terms of extended expansion, on the one hand, the product side acquired Italy's TGS company; on the other hand, distributors Xi'an Shenke and Guangdong Xinyou achieved control, and strengthened control over the channel side. 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 2.19/2.39/2.63 (original forecast was 2.33/2.54/280 million yuan), corresponding to EPS of 0.43/0.47/0.51 yuan. According to comparable company valuations, the company was given 38 times PE in 17 years, corresponding to the target price of 16.34 yuan, maintaining the “increase in holdings” rating. Risk warning that 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.