Investment highlights: The company released its 2018 semi-annual report on August 17. In the first half of 2018, revenue was 442 million yuan, up 2.78% year on year; total profit was 95 million yuan, up 53.7% year on year; net profit was 83 million yuan, up 57.8% year on year; net profit after deducting non-net profit of 73 million yuan, up 65.9% year on year. EPS after deduction was $0.32; return on net assets was 4.79%. Net operating cash flow per share for the reporting period - $0.01. Brief reviews and investment recommendations. 1.2Q18 revenue increased 13.31% year over year, and gross margin increased 1.76% to 61.33%. In the first half of 2018, the company achieved revenue of 442 million yuan, an increase of 2.78% over the previous year. 1Q and 2Q revenue increased -5.94% and 13.31% respectively. By brand, agents for imported products, Medos, and Mansiana each earned 4.74 million yuan, 96.4 million yuan, and 5.06 million yuan, up 502%, 32.48%, and 18.42% year on year. By channel, KA channel revenue, represented by Da Runfa and Wumei, etc., grew rapidly, with a year-on-year increase of 10.33% to 134 million yuan, accounting for 30.4% of total revenue. The 1H18 gross margin fell slightly by 0.38pct to 59.77%, with 1Q and 2Q each being 58.21% and 61.33%, up -2.43 pct and 1.76 pct year-on-year, with a year-on-year increase of -2.43 pct and 1.76 pct. 2Q improved month-on-month. 2. The marketing and management fee rate was reduced by 5.36 percentage points, and financial income was reduced by 2.06 million yuan. The company's sales expense ratio for the first half of 2018 decreased by 5.68 percentage points year-on-year to 34.39%, of which advertising expenses fell sharply by 57.37% to 21.26 million yuan, mainly due to the company's successive acquisitions of Suqian Baibao and Guangzhou Makeup to replace traditional channels through social platforms such as WeChat accounts and public communication; the management expenses rate increased 0.32 percentage points to 8.48% year-on-year, mainly due to the company's increased R&D investment, and R&D expenses increased 7.46% year over year to 18.73 million yuan in the first half of the year. Financial income fell slightly from 2.06 million yuan to 5.09 million yuan, and the overall period expense ratio decreased by 4.85 percentage points to 41.71%. 4. Revenue growth combined with improved expense ratios led to a 57.84% increase in net profit attributable to 1H18. 1H18's investment income increased sharply to 16.66 million yuan, mainly due to an increase in the company's investment income in joint ventures such as Lafang, Yi Jian, Suqian Baibao, etc.; in addition, the effective tax rate was reduced by 2.29 percentage points to 12.5%, and net profit from net profit increased by 57.84% to 83.45 million yuan. After excluding non-recurring income such as investment income, 1H18's net operating profit increased by 42.1%. On a quarterly basis, the increase in revenue in 2Q18 was combined with improvements in gross margin and expense ratio. In the end, net profit attributable increased sharply by 105% to 38.5 million yuan. Excluding non-recurring income such as investment income, 2Q operating net profit increased by 191%, a significant improvement over 1Q (0.81%). 5. Actively lay out the industrial chain (1) channels around channels and brands: On the basis of strengthening the advantages of the original channels, the company has increased channel promotion and sales for offline CS channels, hypermarkets, online WeChat accounts, and Weibo platforms such as KOLs, WeChat mini-programs, and mainstream e-commerce platforms such as JD and Taobao, further enriching and expanding the company's layout in emerging channels. (2) Brand building: Adhere to “Lafon” as the main brand, actively expand its own brands such as “Meadows”, “Binchun”, “Shengfeng”, and “Mansena”, etc., and also further expand the product series matrix by acting for imported products represented by “Replixi” and “Delper” and participating in makeup information to create a youthful, diversified and high-end brand matrix. Furthermore, in terms of brand promotion, in addition to previous advantageous communication channels, the company caters to young people to launch more interesting marketing content, and spreads influence through festivals, celebrities, and young opinion leaders. For example, the company created its own “66 Shunfa Festival” with the theme of “Beauty Begins from the Back”, posted the topic “Tang Yan's Back Murder” through KOL cultivation, and invited Tang Yan to attend a new product launch. The popularity of “66 Shunfa Festival” has greatly increased. (3) Beauty industry chain: As of the end of the reporting period, the company has successively invested in Suqian Baibao and Makeup Information (1H18 each achieved net profit of 14.82 million yuan and 3.71 million yuan), entered self-media social e-commerce and entered the beauty field, and plans to further strengthen its layout in the beauty field in the future. In addition, with Lafang Impress' offline CS funds and the company's own channel network, the company has vigorously expanded CS channels, mainly shopping centers. (4) Research and development: The company focuses on the care and bathing industry, and is increasing research and development of products in the fields of cream, children, and oral care. Through cooperation with international organizations such as Dezhixin, BASF, and Wacker, the company continues to improve product development capabilities. During the reporting period, the company and subsidiaries obtained 4 invention patents, 7 design patents, and 39 additional trademarks. Maintain judgment on the company. The company has a brand gradient layout composed of the core brand “Lafang”, the key brand “Yu Jie”, the strategic brand “Medos”, and many extended brands. Relying on the advantages of stable distribution channels, the company accelerates the layout of supermarkets and e-commerce channels, and forms multi-dimensional channel collaboration. At the same time, investing in Suqian Baibao and Makeup Information will increase self-media social e-commerce and enter the beauty field, expand CS channels mainly in shopping centers, and integrate innovation around brand categories and new online and offline channels, which is expected to drive the company's leapfrog development. Update earnings forecasts and valuations. Revenue for 2018-20 is estimated at 11.11 billion, 12.3 billion yuan, and 1.37 billion yuan, up 13.1%, 11.2%, and 10.6% year on year; imputed net profit is 1.8, 210 million yuan, and 250 million yuan, respectively, up 33.4%, 16.6%, and 17.5% year on year. Referring to comparable valuations in the industry, 30-35 times PE in 2018, corresponding to a reasonable value range of 24.37-28.43 yuan, an investment rating of “superior to the market” was given. Risk warning: Fluctuations in raw material prices; supermarket channel expansion is not as effective as expected; cross-regional business risks; uncertainty in investment returns, etc.