The 1H18 performance was generally in line with expectations Changyu A announced 1H18 results, with revenue of 2.83 billion yuan, an increase of 2.2%, and net profit of 5.1%, corresponding to an EPS of 0.93 yuan. In the first half of the year, wine revenue benefited and showed a 3.9% increase, while brandy revenue fell 4.0% due to low-end drag. The development trend focuses on the middle and high-end, creating a famous domestic wine brand with high quality. The company clearly focuses on the middle and high-end, drives growth with high quality and large single products, and continues to reduce product SKUs. It is expected that in the first half of the year, Cevaina will grow by 10%, winery wines will grow in low single digits, while low-grade dry red and brandy will decline. The company focuses on product quality and enhances brand height through active structural improvement and product quality upgrade. Later, the company will also cooperate with e-commerce, new media, etc. to build brand awareness and reputation in a complex three-dimensional manner. The volume of imported wine in the first half of the year was 444,000 tons, an increase of only 4.4% over the previous year, and the marginal impact on domestic wine has clearly weakened. There have been no major well-known brands of imported wine for many years, and there is currently a trend of low price homogenization competition. The company has a clear strategy and continues to strengthen Changyu's brand advantages and further enhance its quality reputation. Optimize the entire system to improve operational efficiency. Continue to reform the internal sales system, improve the flexibility and enthusiasm of the sales team, and sort out the dealer team externally. The production side reduces inventory and improves capital utilization efficiency by introducing an order-driven production model based on sales and production. In 2018, due to active salary increases, the pressure to increase expenses by a large one time is obvious. It is expected that there will be another steady increase in 2019. Employee remuneration in sales/management expenses in the first half of the year increased 21%/33% year-on-year. Under the circumstances of staff reduction, the company took the initiative to increase the remuneration of the remaining employees, focusing on sales staff, which greatly increased the enthusiasm of the sales system. Profit forecast The EPS forecast for 18/19 was lowered by 3.8%/5.8% to 1.48/1.53 yuan from 1.54/1.63 yuan to 1.48/1.53 yuan due to higher sales and management expenses than originally anticipated. The valuation and recommended current price correspond to 25.4/24.6x P/E in 18/19, maintaining a neutral rating. Due to lower profit forecasts, the target price was lowered 6% from 40.7 yuan to 38.3 yuan, corresponding to 25.8/25.0 xP/E in 18/19. The target price has room for a 2% increase. The current price of Changyu B corresponds to 11.2/10.9xP/E in 18/19, maintaining the recommended rating. Due to profit downgrades and exchange rate fluctuations, the target price was lowered 15% to HK$30, corresponding to 16.5/16.0x P/E in 18/19. The target price has room for 47% increase. Low-risk products are being cleaned up too quickly, and revenue will be under pressure in the short term.