Event: The company released its 2018 semi-annual report. In the first half of the year, it achieved revenue of 8.520 billion yuan, an increase of 30.36% over the previous year; realized net profit of 185 million yuan, an increase of 29.82% over the previous year; net profit after deduction of 182 million yuan, an increase of 23.53% over the previous year, and achieved a basic EPS of 0.74 yuan. At the same time, the company predicts net profit of 200-260 million yuan in the first three quarters of 2018, an increase of 0-30% over the previous year. The overall performance was in line with expectations. Investment highlights: The growth rate in the second quarter was impressive, and the expense ratio remained stable. On a quarterly basis, Q2 revenue was 4.732 billion yuan (+34.99% year-on-year), a significant increase from 25.00% in the first quarter; Q2 net profit growth rate was 36.04%. For the first time since 2016/Q1, the profit growth rate in a single quarter was higher than 35%, showing a good marginal improvement. The gross margin for the first half of the year was 9.93%. There was a decline compared to 17H1. We believe that on the one hand, it was affected by the price reduction in consumables tenders, and on the other hand, the two major equipment platforms, Guorun and Weizhong, grew rapidly, which had a partial impact on gross margin. The cost rate for the first half of the year was 4.81%, which is roughly the same as the same period last year. Among them, the financial expense ratio rose to 0.96% due to recent liquidity effects, but thanks to the integration effect of its subsidiaries, the company's overall sales expense ratio and management expense ratio declined, ensuring the stability of the company's net interest rate. Both cash flow payback and accounts receivable have improved. Asset-side companies reported accounts receivable of 5.996 billion yuan, and turnover days were 117.26 days. Compared with improvements in the first quarter and the first half of last year, we expect hospital repayments in Beijing to gradually stabilize. At the same time, the company's book cash was 1,391 million yuan, an increase of 271 million yuan over Q1, net operating cash flow of -321 million yuan, and Q2 quarterly repayment of 214 million yuan, excellent year-on-year performance (17Q2 was -84 million yuan). This also confirms the previous view of improving cash flow and repayments from circulation operations in the Beijing region. The operating performance of the parent company is relatively good. The profit of the subsidiary is still affected by price cuts. Looking at the split business, most of the pharmaceutical distribution business in the Beijing region is done by the parent company, and a small amount is in subsidiaries; in addition, the subsidiaries responsible for drug sales also include distribution and pharmacy business in other provinces, while the remaining subsidiaries mainly handle distribution of high-value consumables. From this perspective, the 18H1 parent company had revenue of 2,512 billion yuan (+22.78%), of which Shougang's GPO business achieved revenue of 371 million yuan (+16.56%), returning to the growth channel; the pharmaceutical subsidiary that has published operating data (same below) has a total revenue of 1,073 million yuan (+112.44%), mainly Chengdu Rongjin H1, which was acquired in the second half of last year, achieved revenue of 620 million yuan, net profit of 512 million yuan. Rapid growth, all of which have exceeded the target for the full year of '17; the device subsidiaries added Jiashi Colleague, and Jiashanghan Sikanda enters and According to the table, 18H1 achieved a total revenue of 5.05 billion yuan (+26.55%). Judging from its contribution to overall net profit, the 18H1 parent company achieved net profit of 100 million yuan (+40.69%), mainly due to an increase in gross margin in the first two quarters of 2018 compared to the same period last year. It is expected that with the deepening of sunshine recruitment, the company's gross margin will continue to improve with the rapid growth of the pure sales business; pharmaceutical subsidiaries contributed a total of 121 million yuan in net profit in the first half of the year, a slight decline over the previous year; while device subsidiaries contributed a total of 102 million yuan (+18.30%), the growth rate was slower than revenue growth, mainly due to lower bids on the consumables side. Overall, the “Recommended” rating was given. Overall, the company's distribution business development progress in the Beijing region was in line with expectations. The third quarter of '17 was affected by Sunshine Procurement and became a low performance point in the third quarter. We expect this year's low base effect combined with a steady increase in hospital distribution, and this segment of business will continue to grow rapidly. Although the high-value consumables distribution business is affected by bid price cuts and gross margin is under pressure, long-term profit margins will also stabilize, and revenue growth brought about by medium- to short-term mergers and acquisitions integration will partially make up for this impact. Currently, the device distribution sector has entered a period of integration, and the company's early layout will bring a first-mover advantage, compounded by rapid growth in drug distribution in Sichuan. Overall, we expect the company's net profit in 2018, 2019 and 2020 to be 322, 4.01 and 497 million yuan, respectively. EPS is 1.28, 1.60, and 1.98 yuan, respectively, corresponding to the current stock price PE 17.16, 13.75, and 11.10 times The company is based in the pharmaceutical wholesale business in the Beijing region. In recent years, it has vigorously expanded the distribution business of high-value consumables across the country. The market space is vast. The current valuation has a high cost performance ratio, giving it a “recommended” rating. Risk warning 1. The expansion of pharmaceutical distribution business in Beijing falls short of expectations; 2. The progress of mergers and acquisitions in the device distribution business falls short of expectations