Core view: 1. Incident: The company released its report for the third quarter of 2018. In the first three quarters of 2018, the company achieved operating income of 856 million yuan, a year-on-year increase of 23.82%; achieved net profit attributable to shareholders of listed companies of 246 million yuan, an increase of 18.14% over the previous year; realized net profit without deduction of 232 million yuan, an increase of 15.07% over the previous year; and achieved EPS of 0.6053 yuan. Among them, in the third quarter, the company achieved operating income of 314 million yuan, an increase of 34.59%; realized net profit attributable to shareholders of listed companies of 556.292 million yuan, an increase of 44.97% year on year; realized net profit deducted from mother of 53.2755 million yuan, an increase of 40.32% year on year; and achieved EPS of 0.1370 yuan. On the financial side, sales expenses during the reporting period were 416 million yuan, up 31.43% year on year, mainly due to the company increasing brand building, new product promotion and academic marketing efforts; R&D expenses of 21.311 million yuan, up 39.76% year on year; financial expenses of 7538 million yuan, up 613.88% year on year, mainly due to the increase in bank loan interest expenses during the reporting period; and the company's net operating cash flow of 404 million yuan, an increase of 56.24% year on year. The company announced its 2018 annual performance forecast. It is expected to achieve net profit of 301-391 million yuan for the whole year, an increase of 0-30% over the previous year, mainly due to continuous steady growth in the pharmaceutical business. 2. Our analysis and judgment (1) Performance growth accelerated. Expense rates increased during the period, and the company's performance accelerated markedly in the third quarter, which led to a significant increase in overall performance in the first three quarters. The 18Q3 company achieved revenue of 314 million yuan, a year-on-year increase of 34.59%. Compared with the performance growth rates of 18Q2 (+19.25%) and 17Q3 (+15.22%), the company achieved significant increases. At the same time, profit side performance was also the same. Net profit not attributable to mother was 53.2755 million yuan in 18Q3, up 40.32% year on year. Growth rates in 18Q2 and 17Q3 were 8.62% and 30.59%, respectively. Driven by a sharp acceleration in Q3 performance, the company's performance in the first three quarters was further improved. 18Q1-Q3 revenue was 856 million yuan, up 23.82% year on year, up 16.16pp from the same period last year; net profit to mother was 246 million yuan, up 18.14% year on year, up 14.81 pp year on year from the same period last year; net profit without return to mother was 232 million yuan, up 15.07% year on year, up 5.19pp year on year. We believe that the main reason why the company's revenue growth rate in the first three quarters was higher than the profit growth rate was due to the faster increase in sales expenses, which led to an increase in expenses during the period. Sales expenses for the first three quarters were 416 million yuan, an increase of 48.58% year over year. The cost rate for the driving period was 57.05%, an increase of 3.71 pp over the same period last year. We believe that the main reason for the continued growth rate of the company's performance is that the company's sales channels were strongly reduced in the early stages, and the company's products tend to have a complete layout in the three major terminals of hospitals, grassroots, and pharmacies. The company formulates a strategy for the three terminals to work together, adhere to brand-driven academic marketing strategies in the major hospital market, increase academic marketing efforts, and continue to promote the enterprise and product brands. In the grassroots market, adhere to academic leadership, accumulate product research evidence, and support sales promotion and product development. In the retail pharmacy market, the company continues to expand terminal coverage, enhance brand influence, and promote further sales growth. (2) Optimistic that the new strategy of “one axis, two wings and three supports” will drive steady growth in the company's performance. In 2018, the company's operations closely revolved around the strategic initiative of “one axis, two wings and three supports” to continue to strengthen core competitiveness in all areas. “One axis” means strengthening pain relief patches, and achieving continuous growth in pain relief patches through major hospitals, basic drugs, and retail three-wheel drives. On the one hand, “Two Wings” provides patients with clinically valuable specialty treatments and classic prescription product portfolios through a rich product line in pain categories, and on the other hand, by focusing on neurological rehabilitation, gynecology, and dermatology markets. “Three supports” refers to marketing model innovation, capital operation, and the construction of an EMU model organization including data, information, operation, talent, and mechanism construction. The company focuses on the pharmaceutical business and continuously strengthens core competitiveness such as product advantages, brand advantages, marketing advantages, R&D advantages and resource advantages: (1) in terms of product layout, the company continuously enriches the product range, optimizes the product structure, and accelerates breakthroughs from a single variety to multiple varieties and multiple gradients; (2) in terms of brand building, the company is patient-centered to enhance the customer experience. Strengthen interaction and communication with key customers, enhance customer stickiness, and increase brand awareness; (3) in terms of building marketing advantages, further promote academic marketing through diversification of investment forms, rationally coordinating omni-channel development and multi-channel collaboration; (4) In terms of R&D, during the reporting period, the company's R&D expenses were 21.311 million yuan, an increase of 39.76% over the previous year, and R&D efforts continued to be strengthened. The company strives to promote clinical research on products and standard research on Tibetan medicinal herbs, while enriching the company's product line. 3. Investment recommendation The company is a leading Tibetan medicine company. Looking forward to the future, first-tier pain-relieving patches are expected to maintain a rapid growth rate with a perfect sales channel layout; second-tier ointments and pills are expected to continue to gain strength, and achieve rapid growth in performance through the three drivers of major hospitals, basic drugs, and retail. In addition, the company vigorously promotes brand building and enriches the product category structure, and future development is worth looking forward to. We raised our profit forecast appropriately. The net profit for 2018-2020 is estimated to be 346/393/445 million yuan, the corresponding EPS is 0.85/0.97/1.10 yuan, and the corresponding PE is 30/26/23 times, respectively. Maintain a “Cautious Recommendation” rating. 4. Risk indicates the risk of drug price reduction, and new product marketing progress falls short of expectations