The 2017 results were in line with expectations. The company announced 2017 results: operating income of 26.477 billion yuan, up 22.34% year on year; net profit of 4.101 billion yuan, up 22.77% year on year, corresponding to earnings of 0.82 yuan per share. The performance is in line with our expectations. The company plans to distribute 2.35 yuan in cash (tax included) for every 10 shares. The trend is that tablets are growing at a high base, and medical device trade has increased by 118%. In 2017, the company's Chinese medicine tablet revenue was 6.158 billion (+30.93%), maintaining high growth on a high base, mainly due to the vigorous promotion of the smart pharmacy model and the continuous increase in the market share of tablets; Chinese herbal medicine trade revenue of 5.857 billion (+1.18%), future efforts to promote the transformation of the role of a Chinese herbal medicine trader to a Chinese herbal medicine supplier service provider; drug trade revenue of 9.599 billion (+31.44%), thanks to the company's active acquisition of high-quality hospital drug agency rights; medical device revenue of 1,990 billion (+117.88%), belonging to the company Potential growth sector. Currently, the company has covered about 90% of the country's regions. Among them, the country's general range includes Kanghui balloons, American WRIGHT artificial bone, etc., and regional agents include Kandi stapler, Meijing Arthroscope, etc.; other businesses include health food, etc., with revenue of 2,761 billion dollars. Gross margin has improved, and C-side marketing has been increased to increase sales expense ratio. In 2017, the company's gross profit margin was 30.32%, an increase of 0.42ppt, mainly the gross margin of the medical device business increased by 5.80ppt. The sales expense ratio was 2.80%, an increase of 0.22ppt, mainly because the company increased marketing promotion and marched into the C side. Net operating cash flow was $1,843 million, an increase of 14.95%, maintaining steady growth. Step up the promotion of “smart pharmacies” and use efforts to enter the C-side. In the future, the company will step up the promotion of “smart pharmacies” and speed up the implementation of “smart pharmacies” in Guangzhou, Shenzhen, Beijing, Shanghai, Chengdu, Puning, and Kunming, while actively starting the construction of central pharmacies in Guiyang, Chongqing, Xiamen, and Meihekou. In addition, with “smart pharmacies” as the core data entry, the company will further extend to consumers through B-side such as medical institutions, pharmacy chains, and communities, etc., to build the company's brand power on the C-side; and accumulate information on medical institutions, communities, doctors, consumers, medicinal materials, and diseases, provide data sources for big data development, and collaborate with R&D, commercial insurance and other businesses. Profit forecast We kept the 2018 EPS unchanged at 0.98 yuan, a year-on-year increase of 19.4%, and the introduction of EPS in 2019 at 1.17 yuan, an increase of 18.4% year-on-year. The valuation is based on the proposed company's current stock price corresponding to 18/19 times P/E (or other valuation method) of 22/19 times P/E (or other valuation method). Maintaining the recommended rating and target price of 28, corresponding to 29/24 times P/E in 18/19, there is 27.2% room compared to the current stock price. The expansion of risk smart pharmacies has fallen short of expectations; the implementation results of government-type strategic cooperation have fallen short of expectations.