Performance summary: The company released the 2018 interim report. In the first half of the year, it achieved operating income of 580 million yuan, +0.78% year-on-year, and net profit of 86.55 million yuan, +2.5% year-on-year. Among them, Q2 achieved revenue of 194 million yuan in a single quarter, -4.6% year-on-year, and net profit of 310,000 yuan, or -82.5% year-on-year. The growth rate is slowing, focusing on product structure upgrades. The company's growth rate in '17 was 23%, mainly benefiting from mergers and price increases. The revenue growth rate of 18H1 companies was 0.78%, a sharp slowdown from '17. However, considering the lackluster growth of the rice wine industry as a whole, it is normal that there are no major mergers and acquisitions and slow growth. 1. In the first half of the year, sales of rice wine reached 570 million yuan, which was basically the same as the previous year. The parent company of Huijishan achieved low single-digit growth, and the subsidiary Wu Fengmao achieved revenue of 90.12 million, a significant year-on-year increase. The Tang Song wine industry achieved revenue of 1.55 million, a significant decline over the previous year, mainly due to the fact that Tang Song and Huijishan products and channels overlap, the company consolidated and retained only the Tang Song brand. 2. By product, high-end rice wine achieved revenue of 383 million yuan (67%), and ordinary rice wine of 165 million yuan (29%). The share of the middle and high-end has increased, and the product structure has been upgraded clearly: 1) new product development focuses on the middle and high-end; 2) the share of pure core products continues to rise for five or eight years under consumption upgrades. 3. Looking at the subregion, Zhejiang, Jiangsu, Shanghai, and outside the province achieved revenue of 393 million yuan, 64.97 million yuan, 70.68 million yuan, and 34.18 million yuan respectively, intensive cultivation of channels within the province, and investment development outside the province. The company increased its net number of dealers by 68 during the reporting period, further strengthening market coverage. The increase in gross margin and the increase in sales expenses focus on brand building. 1. Through the product structure upgrade, the company's overall gross margin increased by 0.55pp to 43.12%. 2. Sales expenses were +15.8% compared to the same period, mainly due to an increase in promotional expenses (+41%) and advertising expenses (+65%, the company's ground advertising on high-speed railways, etc.), and the sales expenses rate increased by 1.33pp to 10.3%; the management expenses rate decreased by 1.45pp to 8.48%, mainly due to corresponding tax account adjustments. The rice wine industry is just waiting to break the situation. Currently, the rice wine industry has fallen into a growth bottleneck. Mainstream consumer groups are still limited to the Jiangsu, Zhejiang, and Shanghai regions, and the three rice wine companies compete fiercely for stocks. Due to low taste and awareness, the nationalization process is slow, and it is difficult for the domestic and foreign markets to see significant quantitative growth in the short term. The rice wine industry needs further integrated planning to solve many problems such as low product level, national marketing, and next-generation consumer education. We are still waiting to resolve the situation. Profit forecasts and investment advice. Since the growth rate for the first half of the year was lower than expected, the company's profit forecast was temporarily adjusted. The company's 2018-2020 revenue compound growth rate is expected to be 9.7%, net profit compound growth rate is 13%, EPS is 0.40, 0.46, and 0.53 yuan respectively, and corresponding dynamic PE is 26, 22, and 19 times, maintaining the “increase in holdings” rating. Risk warning: The rice wine industry is not booming, and product sales are falling short of expectations.