The 1H18 performance fell short of expectations. Huijishan announced the 1H18 results, with revenue of 583 million yuan, an increase of 0.78%, and net profit of 87 million yuan, an increase of 2.51%, corresponding to an EPS of 0.174 yuan. Both revenue and profit were slightly lower than expected, mainly due to the company's vigorous product clean-up of the Tang and Song wine industry. The revenue of the Tang and Song wine industry in the first half of the year was only 1.55 million yuan, while the revenue for the full year of 17 is expected to be around 50 million yuan. The gross profit margin for the first half of the year was 43.1%, up 0.55ppt from the previous year, mainly due to the rapid growth of the five-year series, which boosted the overall product structure. The development trend is to actively adjust the product structure upward to adapt to and guide the trend of upgrading rice wine consumption. The Huijishan brand focuses on pure products that are 5 years old and above, continuously upgrades and iterates on existing products, and launches new products such as ingenious works. Other brands continue to sort out products and eliminate low-grade products that are slow to sell. In the first half of the year, the share of high-end rice wine in alcohol revenue rose to 67%. The company began to increase market investment, combining high-altitude publicity with ground promotion. Advertising/promotion expenses in the first half of the year increased 65%/41% year over year, and the overall sales expenses ratio increased for the first time in the same period since 2015. The company began to change its conservative business strategy, moderately increase investment, and achieve solid implementation. Markets outside of the province are still weak, especially the main brand Huijishan, which needs continuous promotion and cultivation. In the first half of the year, the company's revenue from outside the province accounted for 31%. Excluding the vast majority of felt hats sold in Shanghai, the revenue from outside the province accounted for less than 20%. Compared with Guyue Longshan, revenue from outside the province in the first half of the year accounted for 64%, and the growth was more balanced and more sustainable. The company needs continuous investment in markets outside of the province, and it is a good choice to take the lead in building a local benchmark market by focusing on it. The profit forecast was lowered 4.8%/2.8% to 0.375/0.428 yuan from the 18/19 EPS forecast from 0.394/0.440 yuan to 0.375/0.428 yuan due to higher sales expenses than originally anticipated. The valuation and recommended current stock price correspond to 18/19 27/24x P/E, maintaining the recommended rating. Due to a reduction in profit forecasts and a moderate reduction in target valuation, we lowered the target price by 7.9% from 14 yuan to 12.9 yuan, corresponding to 34/30x P/E in 18/19, with 27% margin compared to the current stock price. Risk If expansion outside the province is slow, revenue may fall short of expectations.