Kehua Biotech released its 2017 annual report: In 2017, the company's revenue was 1,594 billion yuan, up 14.14% year on year; net profit was 218 million yuan and net profit after non-return was 206 million yuan, down 6.30% and 4.48% year on year respectively. The company's profit distribution plan is to distribute a cash dividend of 0.65 yuan (tax included) for every 10 shares. The agency business is growing rapidly, and period expenses are dragging down profit growth. In 2017, sales of the company's agent products increased 19.81% year on year, and sales of agent reagents and instruments increased 63.23% and 23.00% year on year respectively. The high growth of agent reagents increased agent gross margin by 4.67 pct year on year. Sales of the company's self-produced products were under pressure, with a year-on-year growth rate of 9.07%. The sales volume of self-produced reagents and instruments decreased by 2.41% and 3.59%, respectively, and the gross margin of self-produced products decreased by 3.21pct year-on-year. The company's sales expense ratio decreased by 1.18 pct year on year, but the management and financial expense ratio increased by 2.18 pct and 0.87 pct, respectively, and the increase in expenses during the period dragged down the growth rate of net profit. The product layout is continuously improved, and channel integration is carried out in an orderly manner. The company's product layout has been continuously improved, gradually forming five major product lines: biochemistry, enzyme exemption, photoimmunization, POCT and molecular diagnostics. The biochemical business uses the “instrument+reagent” strategy to consolidate terminal coverage; the nucleic acid blood screening business is expected to seize the opportunity when the plasma station blood screening policy is implemented. Biokit was officially launched into the domestic market. The complementary advantages of “Self-Produced Excellence+TGS+BioKit” are constantly improving, and sales volume is worth looking forward to; investing in Aoran BioLayout fluorescence PCR technology to reinforce the molecular diagnosis business. Furthermore, the company's gold standard HIV products have once again passed WHO approval, and export business has gradually resumed. In addition to strengthening the product layout, the company has actively optimized the sales team structure and integrated channel resources. It has successively invested in five high-quality regional distributors, including Xi'an Shenke, Guangdong Xinyou, Nanjing Yuanheng, Guangzhou Kehua, and Jiangxi Kerong. Terminal control capabilities have been greatly improved. At the same time, the company's collection and packaging business has once again achieved a breakthrough in Jiangsu Province, and has already launched collection business in some hospitals in Taixing and Taizhou. The company will also use TGS's existing mature marketing network in the EU to accelerate international market development. Maintaining the “buy” rating: We are optimistic about the company's product layout and channel integration and optimization. We expect the EPS in 2018-2020 to be 0.48 yuan, 0.56 yuan, and 0.65 yuan respectively, and the corresponding PE will be 29 times, 25 times, and 21 times, maintaining the “buy” rating. Risk warning: New product development approved, sales promotion falling short of expectations, etc.