Key investment events: Cosmetics retail sales grew 15.1% in April, continuing double-digit growth since May last year, and the market continues to heat up. In addition to brands, cosmetics channels are also gradually beginning to benefit from the booming cosmetics market. As the first share in the entire A-share cosmetics industry chain, Qingdao Jinwang's revenue increased by 97.2% and net profit by 117.4% in 2017, and continued to grow rapidly. In response to this trend, we have analyzed the Qingdao Jinwang Distribution Bureau for investors to track. The cosmetics market continues to prosper and maintain rapid growth. The retail sales growth rate of cosmetics was 15.1% in April '18, continuing double-digit growth since May last year, with a cumulative increase of 15.9%. Compared with the same period last year, cosmetics RPI has maintained a slight upward trend. The year-on-year RPI growth rate for 2/3/4 was 1.02/0.95/0.90pct, respectively. Start with channels and become the king of integration in the entire cosmetics industry chain. (1) The online channel is based on Hangzhou Youke, which has exclusive online agency and distribution rights for more than 30 brands, including Estée Lauder and Clarins. The compound annual growth rates of GMV, revenue, and net profit in 14-17 exceeded 35%, 29%, and 97%, respectively. (2) On the one hand, the offline channel relies on Shanghai Yuefeng. The brands operated by Yuefeng's agents include Japanese, Korean, and domestic brands such as Paraffin and Han Hou, focusing on developing franchise stores and supermarket chains such as Watsons and Grand Runfa. The CAGR of operating income and net profit in 14-17 exceeded 110% and 53%. (3) On the other hand, the company has also continued to integrate offline channel resources through the establishment of Jinwang Industrial Chain Management Company. It has covered 14 provinces across the country, covering more than 10,000 terminal outlets. (4) The company has expanded its own brands through mergers and acquisitions in Korea and Asia, and has acquired its own brands, including makeup brands Lanxiu, LC, and skincare brand Phytocell. (5) The company's merger and acquisition of Guangzhou Dongfang increased the upstream R&D and production capacity of cosmetics. In the next few years, the company is committed to becoming the country's leading digital supply chain and technology service platform for the face value industry, planning to develop smart supply chains and smart retail, and optimize the efficiency of the entire industry chain. In the long run, it can target ULTA and is already beginning to have the potential to be a channel leader. The year ULTA2007 accurately grasped the changing trend of emerging cosmetics channels, vigorously expanded cosmetics franchise stores; built a one-stop beauty and personal care retailer; saved the cost of opening a store and followed the “rural surrounding city” route; and accumulated a huge and loyal member base, which ultimately achieved great success. Profit forecast and investment rating: It is expected that the company will continue to benefit from the recovering cosmetics market. Combined with the company's omni-channel and full-industry layout, it can maintain a good performance growth rate. According to the adjusted profit forecast, net profit for 18-20 is expected to be 416 million/512 million/632 million, respectively, up 3.2%, and 23.4% year-on-year (excluding non-recurring profit and loss in '17, up 86.5% year-on-year); the estimated EPS for 2018-2020 is 1.02/1.26/1.55 yuan, and the PE corresponding to the closing price on May 22 is 22x/18x/14x, respectively. Give it a “prudent increase in holdings” rating. Risk warning: The growth rate of cosmetics retail fell short of expectations, the company's channel expansion was not smooth, and poor operation caused impairment of goodwill