Matters: The company announced its semi-annual report, achieving revenue of 982 million yuan (+8.21%), net profit of 66.91 million yuan (+13.99%), and net profit of 48.58 million yuan (+0.32%). EPS is 0.076 yuan. Ping An's view: Product structure changes affect the gross profit margin, and the cost ratio is generally stable: the company's gross margin is 73.89% (-1.38pp), mainly due to the high growth in chemicals and solid preparations of traditional Chinese medicine, and the gross profit of these products is lower than that of traditional Chinese medicine injections such as Shenxiao; the total of the three rates is 61.64% (+0.53pp), with little change. Among them, the sales expense ratio was 40.81% (-3.17pp), mainly due to the company's marketing reforms and adjustments in sales team personnel; the management expense ratio was 16.39% (+4.28pp), mainly due to increased R&D investment; and the financial expense ratio was 4.44% (-0.58pp). The main business grew well, and loss-making hospitals dragged down profits: Among the company's main products sold, with the exception of olivine, which declined slightly, all other products continued to grow. Among them, Guizhou Jingfeng, which mainly sells Shenxiao glucose injections, achieved revenue of 304 million yuan (+2.7%), net profit of 53.65 million yuan (+5.9%), and Guizhou Jingcheng, which sells oral traditional Chinese medicines such as Xinniang, achieved revenue of 139 million yuan (+26.1%), achieving net profit of 1.76 million yuan (+50%); sales of Shanghai sodium hyaluronate are the main products Peak achieved revenue of 86.7 million Yuan (+26.9%), achieving net profit of 22.51 million yuan (+119.6%). The main reason for the decline in the olivine series is that the scope of medical insurance payments for injectables is limited, but currently in cities with high production, such as Beijing, the restrictions have been lifted, and stability is expected to return in the future. Furthermore, olivine oral milk is growing rapidly. As the company increased its R&D investment, it invested 100 million yuan (+98.19%) in R&D in the first half of the year. At the same time, Liandun Orthopedic Hospital and Liandon Obstetrics and Gynecology Hospital lost a total of 22.39 million yuan, which greatly dragged down the company's net profit. Flubiprofen ester is expected to be marketed next year, a large variety with a good competitive pattern: flurbiprofen ester injections, a product of the company's subsidiary, have been submitted for CDE approval and are expected to be listed next year. Currently, the only manufacturers selling flurbiprofen esters on the market are Beijing Tide and Wuhan Daan. The total sales volume of the PDB sample hospitals in 2017 was 1.15 billion yuan. Currently, there are 2-3 companies applying, and the competition pattern is good in the future. The product is expected to contribute significant sales to the company's future growth. R&D investment has increased, and product pipelines have gradually been enriched: the company's R&D investment in the first half of the year increased to 100 million, accounting for 10% of revenue, and established multiple R&D pipelines for APIs, traditional Chinese medicine preparations, chemical generic drugs, and new drug delivery systems. In the first half of the year, the company obtained 3 drug registration approvals, 4 clinical approvals, 1 supplementary production approval, and 2 new products for production. The consistency evaluation of four products, including irinotecan hydrochloride injection, was successfully carried out, and it is expected that the first batch will pass the consistency evaluation in the future. The US generic drug platform Shang Jin has declared nine varieties. With the launch of these varieties, the company can expect long-term growth in the future. Maintaining the “recommended” rating: The company's main business is growing well. Driven by the company's marketing reforms, some varieties are growing rapidly, which is expected to become a driving force for continued performance growth. The listing of flurbiprofen ester is also expected to bring new growth points to the company. The company has increased investment in R&D, gradually enriched product lines under development, and is sustainable in the medium to long term. Maintaining the original forecast, the company's 2018-2020 EPS is expected to be 0.23/0.29/0.37 yuan, respectively, and the corresponding PE is 17/14/11 times, respectively, maintaining the “recommended” rating. Risk warning 1. Policy risk: Pharmaceutical industry policies are frequent. Policies such as drug price reduction, two-ticket system, and zero bonus all have an impact on the company's business in the short term. 2. The risk that the product will not win the bid: The company's products are basically prescription drugs and need to be sold in hospitals. If important varieties are not sold in certain provinces, it may have an impact on sales revenue. 3. Research and development progress falls short of expectations: There is a possibility that drug development will fail in the entire process. The company has many ongoing research projects, and some important varieties have entered the clinical stage. Failure may have a negative impact.