Performance summary: in the first half of 2018, the company achieved operating income of 16.96 billion yuan, an increase of 27.9% over the same period last year, a net profit of 2.6 billion yuan, an increase of 21.1% over the same period last year, and a net profit of 2.6 billion yuan, up 20.3% over the same period last year. Operating cash flow is 450 million yuan,-57.6%.

The performance is in line with expectations, with the rapid growth of traditional Chinese medicine and medical devices. The company achieved a year-on-year growth rate of 21.1% and 20.3% respectively after returning to the parent and deducting non-profit, which was in line with expectations. Quarter-by-quarter: 2018Q1 and 2018Q2 realized income growth of 27.7% and 28.1% respectively over the same period last year, and their net profits were 33.3% and 9.0% respectively. The high growth of 2018Q1 is mainly due to the fact that the income tax preference for 2017Q1 high-tech enterprises has not been recognized and paid in advance at 25%, resulting in a low base. Sub-product line: 1) Chinese medicine trade: realized income of 4.8 billion yuan, an increase of 26.2% over the same period last year; 2) traditional Chinese medicine slices: realized income of 3.83 billion yuan, an increase of 41.9% over the same period last year, driven by the new model of intelligent pharmacy, continue the trend of rapid growth; 3) Western medicine trade: achieve income of 4.9 billion yuan, an increase of 10.1% over the same period last year 4) Medical devices: focusing on orthopedic high-value consumables, through self-construction and acquisition, the income reached 1.35 billion yuan, an increase of 67.8% over the same period last year. 5) Health food and food: realized income of 620 million yuan and 450 million yuan respectively, up 7.3% and 30.9% respectively over the same period last year. 6) property management: realized income of 800 million yuan, an increase of 66.0% over the same period last year. Driven by the business of prepared pieces of traditional Chinese medicine and medical devices, we believe that the company will continue to grow by more than 20%.

Wisdom pharmacy significantly led to the rapid growth of prepared pieces of traditional Chinese medicine. Since its official operation in June 2015, Wisdom Pharmacy has developed rapidly, and the company has completed its layout in Guangzhou, Shenzhen, Beijing, Shanghai, Chengdu, Puning, Chongqing, Xiamen, Kunming, Guiyang, Meihekou and other key cities. At present, the wisdom pharmacy successfully undertakes the function of the traditional hospital pharmacy and connects the prescription resources of medical institutions in real time, which is highly expandable. At present, the company has established long-term cooperative relations with more than 2000 medical institutions and about 200000 drugstores, and the annual total number of outpatients in medical institutions has reached more than 200 million. The rapid growth of the business of prepared slices of traditional Chinese medicine in 2017 and the first half of 2018 is a case in point. driven by smart pharmacies, we expect the company's business such as prepared slices of traditional Chinese medicine to maintain growth of about 30%.

Profit forecast and investment advice. It is estimated that the EPS from 2018 to 2020 will be 1.00,1.21,1.45 yuan respectively, and the corresponding stock price valuation will be 21 times, 17 times and 14 times respectively, and the company's return net profit will maintain a compound growth rate of 21% in the next three years. The company is a leading enterprise in the traditional Chinese medicine industry. Under the background of vigorously promoting traditional Chinese medicine, the company has broad prospects for development and maintains a "buy" rating.

Risk hints: the risk of significant fluctuations in the price of Chinese herbal medicines or pieces of traditional Chinese medicine; the risk of the implementation of strategic cooperation agreements or falling short of expectations; the risk of Internet health service platform promotion or lower than expected; the risk of the company's financial data or being questioned.