1. Incident: The company released a performance forecast for the first three quarters of 2018. In the first three quarters, the company expects to achieve net profit of 375-414 million yuan belonging to shareholders of listed companies, an increase of 45% to 60% over the previous year, and an EPS of about 0.3027 to 0.3340 yuan. Among them, in the third quarter, the company is expected to achieve net profit attributable to shareholders of listed companies of 130 to 169 million yuan, an increase of 34.56% - 74.56% year-on-year, and achieve EPS of about 0.1053 to 0.1366 yuan. 2. Our analysis and judgment (1) Performance continues to grow rapidly, and we continue to focus on recommending that the third quarter results maintain rapid growth, which is superior to our and market expectations. The company's net profit for the first three quarters is expected to increase by 45% to 60% year on year. Among them, net profit to mother for the third quarter is expected to increase by 34.56% - 74.56% year on year, continuing the previous rapid growth trend. The company's performance has maintained rapid growth, which validates our previous judgment that the company has entered a stage of rapid growth. We continue to maintain our “Recommended” rating for the company. (2) Reasons why we continue to focus on recommending the company has strong sales capabilities. We believe that the core competency of OTC companies is sales. The company's sales staff's CAGR for the past six years was 15%. Strong sales capacity is reflected in the fact that a terminal promotion team of up to 20,000 people can cover 200,000 terminal pharmacies. The huge promotion team relies on rich product clusters to provide pharmacy terminals with rich product portfolios and marketing strategies, and provide various value-added services, thereby improving terminal stickiness. In turn, product clusters support the team, forming a positive cycle. There is no pressure on sales in the sales control model, and there is no moisture in performance growth. The market is worried that the increase in performance comes from changes in channel inventory, but in terms of business models, currently Renhe and China are all in a sales control model, and Renhe Limited controls sales by 75%. The sales control model has no channel links of the past, direct access to pharmacy terminals, and no room for pressurization. The company's cash flow in recent years is also clearly greater than net profit, which also verifies that there is no pressure on goods. Multiple factors helped the company enter a phase of rapid growth. Although the bottom of performance was experienced in 12-13, overall revenue, net profit, and cash flow showed a steady growth trend over the past 10 years, with CAGR of 18%, 23%, and 26%, respectively. Results improved quarterly in '17, and entered a new phase of growth in '18. Many factors, such as changes in sales strategies, maturity of the team, and adjustments in incentive mechanisms, have contributed to the rapid growth stage. Growth points come from many aspects: 1. Channel expansion. The company is increasing coverage of tertiary terminals and primary care. 2. The sales team is becoming more and more mature to form a specialized promotion system. 3. Focus on self-produced products. 4. Epitaxial development. 5. Increased concentration in the OTC industry. The company has no liabilities, no guarantees for shareholders, and is not affected by deleveraging. The company manufactures and consumes all domestically, and is not affected by the trade war. The company's business attributes are more similar to consumer goods, and are not affected by medical reform and price reductions. At the same time, as a leading private enterprise in the OTC industry, the company has a good incentive mechanism. Its performance has grown steadily over the past ten years. Currently, it has entered a stage of rapid growth. Various financial indicators are excellent, and future development will benefit from increased industry concentration. Recently, some self-media published inexplicably negative articles, recounting negative reports in 2012 and focusing on sales over R&D. We believe that the logic of innovative drugs cannot simply be applied to OTC companies. OTC logic favors consumer products, and R&D investment naturally cannot be measured by the standards of innovative drugs. The company has also increased investment in R&D in the past two years to develop classic recipes and generic drugs. 3. Investment Suggestions We believe that Renhe Pharmaceutical is not affected by trade wars, deleveraging, and price reductions in medical reform and control fees. At the same time, it has high growth and undervaluation. The company's manufacturing and consumption are not affected by the trade war at home. The company has no liabilities, shareholders have no pledges, and is not affected by deleveraging. The company's business attributes are more similar to consumer goods, and are not affected by medical reform and price reductions. At the same time, as a leading private enterprise in the OTC industry, the company has a good incentive mechanism. Its performance has grown steadily over the past ten years. Currently, it has entered a stage of rapid growth. Various financial indicators are excellent, and future development will benefit from increased industry concentration. The company's third-quarter performance growth exceeded our expectations, and we appropriately raised the company's profit forecast for the next three years. We raised the company's three-year EPS forecast for 18/19/20 to 0.434/0.583/0.739 yuan, compared to 0.405/0.539/0.680 yuan. The company's closing price today (10.9) was 6.06 yuan, corresponding to 2018-2020 PE 14/10/8 times, respectively. The company is growing rapidly and undervalued, and we continue to focus on recommending it. 4. Risk indicates the risk of sales of self-produced products falling short of expectations, and the risk of sales team expansion falling short of expectations.