Event: The company released the 2018 semi-annual report: In the first half of the year, the company achieved revenue of 15.507 billion yuan, a year-on-year increase of 49.21%; net profit of 580 million yuan, an increase of 12.88%; net profit of 579 million yuan, a year-on-year increase of 14.77%; net profit increased by 43.55% year-on-year; net profit increased by 43.55% year-on-year; EPS of 0.39 yuan/share. The company's sales expenses in the first half of the year were 1,018 million yuan (+47.37%), management expenses of 629 million (+23%), and financial expenses of 172 million (+184.77%). The company's performance growth rate was in line with market expectations. 1. Performance maintained high growth, medical device distribution and business outside the province grew rapidly 1) From a product perspective, total drug revenue in the first half of the year was 9.692 billion yuan (+21.92%), medical device distribution revenue was 5.774 billion yuan (+139.67%), pharmaceutical gross margin was 11.95% (-0.43%), and medical device distribution gross margin was 32.17% (-0.56%); device revenue growth was far higher than pharmaceuticals, and the share continued to rise. 2) In terms of regional distribution, in 2017, Shandong Province achieved revenue of 7.081 billion (6.47%), while revenue outside the province was 8.426 billion (+125.14%). Among them, revenue in Liaoning, Anhui, Jiangsu, Jilin, and Hubei provinces achieved significant revenue growth, reaching 579 million (+2,618%), 543 million (+9,050%), 542 million (+2,685%), 285 million (+2,396%), and 188 million (+11,783%), respectively. The company's business has maintained steady growth, the profit level of companies outside the province that have completed acquisitions has risen, and the business outside the province is growing rapidly. 2. Cash flow improved month-on-month. Capital operation efficiency increased. The company's operating income exceeded 8 billion yuan in the second quarter, and operating cash flow was -34 million yuan (when no new financial instruments were used), improving significantly from year to month, reaching the highest level in a single quarter since 2016. The company's national strategic layout creates a nationwide sales network through the “merger+partner” model. Most of the mergers and acquisitions have the characteristics of being small but beautiful, highly specialized, and strong marketing capabilities. They have unique advantages in segmented fields, and can integrate into the Ruikang system relatively quickly, gather together to form a synergy with the company's existing business lines, and contribute valuable professionals to the Group's various divisions throughout the country. The company refines internal management through informatization and improves capital operation efficiency through internal business ratings. The second half of the year is expected to maintain a healthy cash flow while maintaining rapid revenue growth. 3. The growth rate of drug distribution has slowed, and the medical device business continues to grow at a high rate. By business, there was a slowdown in the growth rate of drug revenue in the first half of the year. The main reason is that the launch of the new ERP system SAP coincided with the full implementation of the “two-ticket system” for pharmaceuticals in Shandong, and the 2017Q4-2018Q1 business needed to go through a period of run-in and adaptation. Furthermore, in the first half of the year, against the backdrop of medical insurance fee control and drug price cuts in Shandong, the overall drug purchase amount of major medical institutions declined, which also had an impact on the sales revenue of the drug distribution business. In the second half of the year, with the end of the SAP system run-in period, improvements in overall operating efficiency will gradually become apparent. At the same time, the company will actively deploy markets outside hospitals. It is expected that the annual growth rate of the pharmaceutical business in Shandong will be slightly higher than in the first half of the year. 2) The medical device business has maintained a high growth rate and further expanded beyond the province. It has completed mergers and acquisitions and business coverage in 31 provinces (municipalities directly under the Central Government) across the country. Currently, the product line of well-known domestic and foreign companies represented by the company covers the comprehensive clinical needs of medical institutions and covers technical services in all departments. Specific breakdown: Inspection business in the first half of the year was 2,905 billion yuan, intervention business was 1,345 million yuan, general consumption distribution business was 465 million yuan, and other product line business was 1,059 million yuan. 4. All-round layout of the medical institution service industry, continuously forming new profit growth points. The company complies with the industry reform policies introduced by the country and the new business formats and needs triggered by this, actively explores new businesses, and creates new development opportunities. Currently, it has expanded its business model to drug distribution, medical device supply chain services, medical logistics services, mobile medical informatization services, third-party logistics, traditional Chinese medicine sector, R&D and production sector, supply chain financial services, etc. The increase in business models has not only increased new profit growth points, but also produced great synergy effects, and can serve all levels in a comprehensive and comprehensive manner Profit forecast for medical institutions: The EPS for 2018-2020 is expected to be 0.88, 1.15, and 1.45 yuan/share, respectively, and the corresponding PE is 14, 10, and 8 times, respectively. The increase in the share of equipment and the share outside of the province has led to faster performance and a significant increase in profit levels. Increased bargaining power and the use of financial instruments will continue to improve cash flow and maintain the “buy” rating. Risk warning: The performance of mergers and acquisitions outside the province fell short of expectations, and the promotion of the two-vote device policy fell short of expectations.