Company News The company released the 2018 semi-annual report. The profit side of the matter review continued to grow rapidly, and the sales expense ratio rose slightly. The main reason for the slowdown in revenue growth was 14.529 billion yuan, up 0.41% year on year. The main reason for the slowdown in revenue growth was that the “two vote system” and other related medical reform policies led to a sharp decrease in the pharmaceutical business sector allocation business; realized net profit of 840 million yuan, up 26.41% year on year; realized net profit withheld 771 million yuan, up 20.52% year on year. The main reason for the high growth rate of net profit was that the company's disposal subsidiary Shanghai Pukang received investment income 512.25,500 yuan. The company's gross sales margin for 2018 H1 was 22.31%, up 9.07 percentage points from the previous year. It mainly benefited from the high growth rate of pharmaceutical business revenue in the industrial sector and the adjustment of product structure and product sales strategies, increased sales of high-margin products, and led to an increase in the company's overall gross margin level. The company's expense ratio in 2017 was 13.52%, up 8.09 percentage points year on year. Among them, sales expense ratio, and financial expense ratio were 11.12%, 2.19%, and 0.21%, respectively, up 7.71 percentage points, 0.37 percentage points, and down 0.01 percentage points. The main reason for the year-on-year increase in sales expenses was due to factors such as high sales scale growth in the industrial sector and medical policy reform. The company increased refined investment efforts. Sales service and promotion expenses increased significantly year on year. The industrial sector optimized product structure and strengthened marketing. The revenue growth rate and gross margin level increased significantly year over year. The company's 2018 H1 pharmaceutical industry sector achieved revenue of 2,835 billion yuan, up 70.03% year on year, sales gross margin was 67.15%, up 21.89 percentage points year on year. Among them, the API business achieved revenue of 582 million yuan, down 11.11% year on year, gross sales margin was 16.95%, down 0.85 percentage points year on year, and the pharmaceutical business achieved revenue of 2,041 billion yuan, up 124.09% year on year, and gross sales margin 83.12%, up 18.56 percentage points from the previous year. By product, sales of atorvastatin calcium capsules in 2018 increased 21.54% year on year, maintaining relatively rapid growth; sales of acetylspiramycin tablets and niergoline capsules increased by 43.55% and 31.74% year on year respectively, showing a rapid growth trend; sales of roivastatin calcium capsules increased 6.98% year on year, and the growth rate slowed. The company's total R&D investment in 2018 H1 was 74.018 million yuan, an increase of 109.69% over the previous year. The company has 68 ongoing research projects, including 3 first-class new drugs. In addition, the company is conducting a consistent evaluation of more than 30 oral solid formulations, and has officially launched the consistency evaluation of nearly 10 injectable varieties. Revenue growth in the commercial sector slowed, and the share of pure sales business increased. The company's 2018 H1 pharmaceutical commercial sector achieved revenue of 8.861 billion yuan, a year-on-year decrease of 7.24%, and gross sales margin of 8.67%, an increase of 2.00 percentage points over the previous year. The company's pharmaceutical business sector was affected by a sharp year-on-year decline in allocation business, and revenue growth declined. The company accelerated transformation and innovation, adjusted its business structure, expanded medical terminal channel resources, and increased the share of pure sales business, leading to an increase in gross margin levels. In addition, the company continued to promote regional expansion. Through the acquisition of Qiqihar Zhongrui, Shenyang Zhuying, and Jinlun Pharmaceutical, the company further enriched the company's product line and strengthened commercial network channels, and achieved new breakthroughs in the layout of the two provinces of Liaoning and Hebei. Risks indicate industry policy risks such as the two-vote system; overseas trade contracts fall short of expectations; and asset injection falls short of expectations. The investment proposal is to maintain the “prudent increase in holdings” rating over the next six months. The company's EPS for 2018 and 19 is expected to be 1.44 and 1.72 yuan. Based on the closing price of 17.21 yuan on August 27, dynamic PE is 11.92 times and 10.01 times, respectively. We believe that the company, as the only pharmaceutical industry platform under the General Technology Group, promotes the integration of the three major businesses of industry and trade. On the one hand, the industrial sector is expected to maintain a relatively rapid performance growth rate by optimizing the product structure and strengthening marketing; on the other hand, the commercial sector has strong endogenous growth capacity by strengthening the commercial network layout and expanding the pure sales business in the context of the “two-ticket system”. For the next six months, maintain the “prudent increase in holdings” rating.