Core views: 1. Incidents. Jishan released the 2018 semi-annual report. In the first half of 2018, the company achieved operating income of 583 million yuan, up 0.78% year on year; realized net profit of 87 million yuan, up 2.51% year on year; net profit after deduction of 81 million yuan, down 1.68% year on year; and basic earnings per share of 0.174 yuan. 2. Our analysis and judgment (1) The results of the second quarter dragged down the performance of the first half of the year. The company's operating income and net profit for the first half of the year increased slightly year-on-year, but after deducting a slight decrease in net profit from the latter, it was mainly hampered by the performance of the second quarter. In 2018, Q1 and Q2 companies achieved operating income of 389 million yuan and 194 million yuan, a year-on-year increase of 3.70% and a decrease of 4.60%, respectively. In Q1 and Q2, net profit was reduced by 0.85 million yuan and -04 billion yuan respectively. Dragged down by performance in the second quarter, the company's gross margin and net profit margin increased only slightly in the first half of the year. The gross margin of the 2018H1 company was 43.12%, up 0.55 percentage points year on year, and the net profit margin was 14.86%, up 0.25 percentage points year on year. The company's sales expense ratio increased by 1.33 percentage points to 10.27% year on year, and the management expense ratio decreased by 1.45 percentage points to 8.48% year on year. In the company's balance and liability situation, monetary capital decreased by 36.44% year on year, accounts receivable increased 113.27% year on year, prepaid accounts increased 221.40% year on year, and advance payments decreased by 84.84% year on year. The company's ability to premium upstream and downstream companies weakened. (2) The geographical characteristics of increasing the share of middle and high-end rice wine and the company's revenue are still quite obvious. Currently, the main markets are still mainly Zhejiang, Shanghai, and Jiangsu. In the first half of 2018, the company achieved revenue of 3.94, 71, and 65 million yuan in Zhejiang, Shanghai and Jiangsu respectively, accounting for 68.88, 12.37, and 11.37% of the main revenue. Zhejiang, Shanghai and Jiangsu accounted for 69.05, 13.69, and 9.48% of the company's revenue in 2017, respectively. The share of middle to high-end rice wine has increased. In the first half of 2018, the company's high-end rice wine and ordinary rice wine achieved revenue of 383 million yuan and 165 million yuan, accounting for 65.75 and 28.40% of operating income respectively. In 2017, the company's middle and high-end rice wine and ordinary rice wine accounted for 58.09 and 39.85% of revenue, respectively. (3) Outreach mergers and acquisitions are worth looking forward to. Currently, the company's main rice wine brands include Huijishan, Shuixiang Guose, Dijutang, Xitang, Wu Felt Hat, Tang and Song. The company acquired Wu Felt Mao Liquor Company and Tang Song Shaoxing Liquor Company in 2016. In 2017, the company plans to issue convertible bonds to acquire 100% of Xianheng's shares. Although the Securities Regulatory Commission decided not to approve the company's issuance of convertible bonds in the first half of the year, the company's future expansion plans are still worth looking forward to. 3. Investment recommendations We gave the company the 2018-2020 EPS of 0.41, 0.46, and 0.53 yuan, and the corresponding PE multiples of 26, 23, and 20, giving the company a “careful recommendation” rating. 4. Risks indicate the risk of raw material price fluctuations; food safety risks; macroeconomic and policy risks.