Investment highlights 2018H1 performance is in line with expectations. The company released its 2018 interim report. 2018H1 achieved operating income of 14.529 billion yuan (+0.41%), net profit of 840 million yuan (+26.41%), and net profit of 771 million yuan (+20.52%) after deducting non-return net profit of 771 million yuan (+20.52%), respectively. The slowdown in revenue growth in the first half of the year was mainly due to a slight decline in revenue in the commercial sector due to the two-vote system. The company increased its business profitability by developing high-margin products, and its performance was in line with expectations. Industrial sector: Revenue and profit have maintained relatively rapid growth, and the results of marketing transformation are beginning to show. In the first half of the year, the pharmaceutical industry sector achieved revenue of 2,867 billion yuan, a year-on-year increase of 64.99%, net profit of 368 million yuan, a year-on-year increase of 33.39%, and gross margin increase of 21.89pcts to 67.15%. Among them, pharmaceutical business revenue was 2,041 billion yuan, an increase of 124.09% over the previous year, and gross margin increased by 18.56pcts to 83.12%. We judge that the sharp increase in revenue in the industrial sector is mainly related to the high opening of the pharmaceutical business and the company's increased sales of high-margin products. Zhongjian Company officially operated in the first half of the year. It has now completed a smooth transition between production and marketing. In the future, it is hoped that profitability will be further enhanced through the promotion of refined investment promotion. In terms of consistency evaluation, in the first half of the year, the company carried out human efficacy (BE) tests on 7 projects, and has already initiated nearly 10 injectable consistency evaluation projects. If progress is smooth, it is expected to further boost revenue in the industrial sector. Commercial sector: Short-term revenue is affected by the two-vote system, and Dianqiang Netcom increases market share. In the first half of the year, the pharmaceutical commercial sector achieved operating income of 8.917 billion yuan, a year-on-year decrease of 7.05%, and a net profit of 260 million yuan, an increase of 18.77% over the previous year. The decline in revenue was mainly due to a decline in allocation business in the context of various policies such as the “two-vote system” and medical insurance fee control. In the first half of the year, the company actively expanded the scale of net sales and explored other business models. Profitability improved. Gross margin increased by 2pcts to 8.67% year on year, keeping net profit growing at a relatively rapid pace. In the first half of the year, the commercial sector continued to promote a strong networking strategy, and successively acquired Qiqihar Zhongrui, Shenyang Zhuying, and Jinlun Pharmaceutical, further enriching products and network channels, and market share is expected to continue to increase. International trade sector: Product restructuring enhances profitability and affects revenue in the short term. In the first half of the year, the international trade sector achieved operating income of 3.26 billion yuan, a year-on-year decrease of 5.99%, net profit of 429 million yuan, a year-on-year increase of 43.56%, and gross margin increase of 2.19pcts to 16.86% year on year. The sales scale of the company's imported single products continued to grow rapidly during the reporting period; the development and operation of export projects progressed steadily, and the scale of foreign aid projects increased dramatically; some types of medical device business were alternating between old and new, which affected overall revenue in the short term. The company vigorously developed high-value consumables products. Revenue is expected to recover in the second half of the year as sales of new products progress. On the basis of consolidating traditional business, the company is actively promoting projects such as Chinese medicine tablets and formula granules. The business continues to be enriched and is expected to become a new growth point. Sales expenses have increased a lot, and cash flow has declined in the short term due to business restructuring. The sales expense ratio of 2018H1 reached 11.12%, up 7.71 pcts from the previous year, which is expected to be mainly related to the high opening of the industrial sector; the management expense ratio and sales expense ratio were 2.19% and 0.21%, respectively, with little change from the same period last year. The company's operating cash flow for the first half of the year was -1,481 million yuan, a year-on-year decrease of 763 million yuan from the previous year. The main reason is that in the first half of the year, the company increased its development efforts in the pure sales business. The credit period of the pure sales business became longer, and capital consumption increased. It is expected that as the company's business structure gradually stabilizes, cash flow is expected to improve. Risk factors: M&A integration falls short of expectations, excessive competition causes gross margin to decline. Maintain a “buy” rating. The company's strategies for refined investment in the industrial sector and strong networking in the commercial sector continue to advance, profitability has improved, and revenue is expected to gradually recover. Therefore, we maintain the company's 2018-2020 EPS forecast of 1.49/1.89/2.39 yuan and maintain the “buy” rating.