Company News The company released the 2018 semi-annual report. Matter Review's performance in the first half of the year continued to grow rapidly. The year-on-year growth rate of Q2 performance was higher than that of Q1, which achieved operating income of 8.520 billion yuan in the first half of 2018, 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; and realized net profit after deduction of 182 million yuan, an increase of 23.53% over the previous year. On a quarterly basis, the company achieved operating income of 4.732 billion yuan, an increase of 34.99% over the previous year; realized net profit of 976.182 million yuan, an increase of 36.04% over the previous year. The year-on-year growth rates on the revenue side and profit side in the second quarter were significantly higher than in the first quarter. We expect that the company's base for the same period last year was low, mainly as the company gradually adjusted its business model to adapt to policy changes such as Sunshine Medical Reform and the two-ticket system. With strong terminal coverage and competitive advantages such as community-based drug delivery, etc., the performance growth rate There has been a recovery. The gross margin level declined slightly. The gross margin of the company's 2018 H1 pharmaceutical wholesale business was 9.45%, down 0.55 percentage points from the same period last year. We expect to be affected by factors such as lower bids for consumables and rapid revenue growth in the pharmaceutical wholesale business, which has a relatively low gross margin level. The company's fee rate for the 2018 H1 period was 4.81%, up 0.03 percentage points from the same period last year, of which the financial expense ratio was 0.96%, up 0.35 percentage points from the previous year. The main reason was the rapid increase in the company's revenue scale and the increase in prepaid purchases and cash payments from upstream suppliers due to the implementation of the two-ticket system, leading to an increase in the company's capital requirements. Continued expansion of foreign port business by region, the Beijing region achieved operating income of 4.02 billion yuan, a year-on-year increase of 30.36%, and gross margin of 8.75%, a year-on-year decrease of 0.25 percentage points; other regions achieved operating income of 4.372 billion yuan, an increase of 31.10% year-on-year, and gross margin of 10.08%, a year-on-year decrease of 0.92%. Looking at subsidiary companies, the number of subsidiaries in the company's medical device sales business was 24, an increase of 6 over the same period last year, including Jiashi Shangyang and Jiashi Tonhan, which the company acquired in the second half of 2017. Among them, Jiashi Shangyang and Jiashi Tonghan achieved total operating income of 83.6665 million yuan and net profit of 16.4795 million yuan. According to estimates, the corresponding net profit of the mother was about 8.4046 million yuan. In terms of the pharmaceutical business, the scope of the consolidated statement added subsidiaries such as Jiashi Rongjin acquired in the second half of 2017. Among them, Jiashi Rongjin achieved operating income of 620 million yuan and net profit of 12.3653 million yuan in 2018. According to estimates, the corresponding net profit of the mother was about 6.3063 million yuan. Through external mergers and acquisitions, etc., the company expanded the company's national pharmaceutical and device business layout, enriched the company's product categories, and significantly increased the company's performance. Risks indicate the risk of increased competition in the Beijing regional market; policy risks in industries such as drug bidding and medical insurance payments; GPO business development falls short of expectations; and expansion outside of Beijing falls short of expectations. The investment proposal is to maintain the “prudent increase in holdings” rating for the next six months and adjust the company's semi-annual report to achieve EPS of 1.33 and 1.64 yuan in 18/19. Based on the closing price of 21.60 yuan on July 10, dynamic PE is 16.25 times and 13.20 times, respectively. The median price-earnings ratio of comparable listed companies of the same type in 2018 was 17.96 times, and the price-earnings ratio of the company was lower than the industry average. We believe that: 1) As a leading pharmaceutical commercial company in the Beijing region, the company uses the implementation of Sunshine Procurement as an opportunity to benefit from industry integration and is expected to expand its market share and expand and strengthen the Beijing market; 2) the company further improved the national layout of the medical device business through the acquisition of Zhejiang Tonghan and Zhejiang Shangyang in 2017, and actively promoted national agency cooperation with Medtronic and Abbott in the first half of 2018 to strengthen the sales network and enrich the product range. For the next six months, maintain the “prudent increase in holdings” rating.