Event: On July 30, 2018, Haixiang Pharmaceutical (002099) released the 2018 semi-annual performance report. In the first half of the year, Haixiang Pharmaceutical achieved revenue of 1,369 billion yuan, an increase of 11.5% over the first half of 2017; of these, it achieved revenue of 758 million yuan in the second quarter, an increase of 17.7% over the second quarter of 2017 and 24.1% over the first quarter of 2018. The first half of 2018 achieved net profit of 277 million yuan, an increase of 13.7% over the first half of 2017; of these, net profit of 232 million yuan in the second quarter of 2018 increased 82.4% over the second quarter of 2017 and 418.0% over the first quarter of 2018. According to our analysis, Haixiang Pharmaceutical, as the leader in the KN-R active dye industry, benefited from rising product prices in the second quarter. At the same time, in the context of the depreciation of the RMB exchange rate against the US dollar, Haixiang Pharmaceutical's export business continued to improve, and overall profitability will continue to improve in the future. Key investment points: optimization of pharmaceutical product structure, expansion of international customized cooperation business, and continuous improvement of overall gross margin level. Haixiang Pharmaceutical's pharmaceutical business is mainly engaged in the production and sale of specialty APIs and formulations, as well as providing customized production and supporting research and development services for international pharmaceutical companies. The company has maintained good cooperative relationships with internationally renowned pharmaceutical companies and has cooperated with Pfizer for more than ten years. It is Germany's BII's only strategic partner in China. The company's Peinan series, clindamycin series, and fluorphenicol series have absolute advantages in scale, quality and technology in the market, and are in a leading position in the industry. In 2017, by strengthening internal management, reducing costs and increasing efficiency, the company continued to consolidate the market share of leading products such as clindamycin series and peinam series, and the profitability of the pharmaceutical sector was stable. The variety and production of dye products have been increased and expanded, and there is plenty of room for future growth. Haixiang Pharmaceutical's Active Blue KN-R is in a leading position in the field of high-end active dyes. It has an absolute voice in its price, and its downstream customers are stable. At present, Taizhou Qianjin Phase I and Phase II Active Blue KR-N have both put into operation with a total production capacity of 15,000 tons. Environmental protection became stricter in 2018, and the flexibility of the company's dye product price increase performance increased. In the future, the company will adapt to the major trend of dye industry upgrading and expand from a single anthraquinone series of active blue dye products to more than 10 active blue dyes, such as methylene active blue and fluorine-containing active blue, as well as other color active dyes and acid dye products, which will help enhance its ability to cope with market risks, and at the same time help expand the company's competitive advantage in the high-end dye segment and increase market share. Profit forecast and investment rating: The company achieved steady growth in performance through new product expansion and production capacity expansion, and the flexibility of the company's product price increase performance increased in the context of stricter environmental protection. The company's 2018-2020 EPS is expected to reach 0.41, 0.52, and 0.61 yuan, maintaining the “increase in holdings” rating. Risk warning: Competition in the pharmaceutical intermediates industry is intensifying; environmental protection measures in the dye industry are lower than expected; risk of declining prices of dye products; the impact of fluctuations in the RMB exchange rate on the company's performance.