Operating profit 1Q18 increased 18% year on year On April 27, the company released 1Q18 results, achieving revenue, net profit, and net non-net profit of 91.4, 14.2 billion yuan, and 1.42 billion yuan, year-on-year increases of 27.7%, 33.3%, and 33.8%. Performance growth was basically in line with expectations. 1Q17, due to accounting treatment (tax rate calculation), the apparent performance base was low, and operating profit 1Q18, which was not affected by the tax rate, increased 18% year on year. The growth rate of main business profit was lower than the revenue growth rate, mainly due to a sharp increase in sales expenses (about 80% year-on-year increase, As a result, the sales fee rate increased by 0.79pct year-on-year). Considering that the tablet business benefits from the integration of smart pharmacies and the industry, and that the agency business benefits from network expansion, we expect the performance growth rate in 18/19 to be 21%/20%. Referring to comparable company valuations and historical valuations, we gave PE a valuation of 24-28 times in 2018, maintained the target price of 24-28 yuan, and maintained the “increase in holdings” rating. The growth of tablets is strong, and the herbal medicine trade remains stable. We expect the revenue of Chinese medicine tablets to increase by more than 30% year-on-year in 1Q18:1) The “smart pharmacy” pioneered by the company takes the role of a pharmacy in the center of the city, seizes the market share of local hospitals and wins a lead in industry integration with advantages such as convenient broth distribution and relief of hospital traffic; 2) As of 2017, smart pharmacies have landed in 7 markets, contributing about 700 million yuan in revenue. We expect the region to expand to more than 15 locations in 2018. As smart pharmacies in Chongqing, Kunming, Guiyang, and Gansu cities land, etc., Revenue from the tablet business The annual growth rate of the terminal is expected to exceed 30%. We expect revenue from Chinese herbal medicine trade to grow steadily in 1Q18. The company's downstream partners include Zhongheng, Jumbo Island, etc., and mainly Chinese medicine injections. We expect the herbal medicine trade to remain stable throughout the year. Agency business development is smooth. We expect 1Q18 revenue from pharmaceutical trade and device trade to maintain rapid year-on-year growth: 1) The company's business is mainly agents, and is one of the most powerful agents in the channel network in Guangdong Province. In recent years, the company has expanded outside of the province (Northeast, Guangxi, etc.) through the acquisition of hospitals and dealers, thanks to the private enterprise system (faster repayment) and channel dominance, and business development is smooth; 2) The company focuses on distribution business focusing on high-value orthopedic consumables. Currently, the medical device business has covered about 90% of the country, including Jiebang Hui, Shi Mai Mei, etc., Chuangsheng , high-consumption medical devices such as Kanghui; 3) We believe that the inventory business has maintained rapid growth. The incremental business (projects in Chongqing, Yunnan and other places) was reflected in 2018. The revenue growth rate of pharmaceutical trade and device trade in 2018 is expected to be 30-40%. Entering Gansu, 2H18 is expected to contribute to incremental companies and announce strategic agreements with the Gansu provincial government. The cooperation includes standardized cultivation of Chinese herbal medicines, Chinese medicine industrial parks, hospital cooperation, smart pharmacies, modern pharmaceutical logistics extension services, etc. Among them, extended pharmaceutical logistics services and smart pharmacy projects are expected to start operation in Lanzhou and Dingxi before June 18, and we expect the Gansu project to contribute a considerable increase in 2018 to the tablet and pharmaceutical trade sectors. Maintaining an “increase in holdings” rating. Considering that the tablet business benefits from the integration of smart pharmacies and the industry, and that the agency business benefits from network expansion, we expect the company's net profit in 2018-20 to be 49.7/59.8/6.95 billion yuan, an increase of 21%/20%/16% over the previous year. Referring to comparable companies' PE valuations and historical valuations, the 2018 PE valuation was 24-28 times higher, maintaining the target price of 24-28 yuan, and maintaining the “increased holding” rating. Risk warning: Smart pharmacy progress falls short of expectations, and hospital acquisitions fall short of expectations.