Core view: 1. Incident: The company released its 2018 three-quarter report. In the first three quarters of 2018, the company achieved revenue of 3.336 billion yuan, an increase of 22.88% year on year; realized net profit attributable to shareholders of listed companies of 393 million yuan, an increase of 51.95% year on year; realized net profit without deduction of 393 million yuan, an increase of 56.07% year on year. Achieved EPS of 0.32 yuan. Among them, in the third quarter of 2018, the company achieved revenue of 1,072 billion yuan, a year-on-year increase of 15.57%; achieved net profit of 148 million yuan, an increase of 53.10% over the previous year; achieved net profit of 150 million yuan without return to mother, an increase of 59.93% over the previous year, and achieved EPS of 0.12 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 56.07% year on year. Among them, net profit to mother for the third quarter is expected to increase by 53.10% 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 estimate that the main reason for the decline in revenue growth in the third quarter was the reduction in the size of the company's non-core pharmaceutical commercial pharmacy network. Due to low commercial business margin, business changes had a large impact on revenue and little impact on gross profit. We can see that the company's gross profit growth rate reached 31% in the third quarter, maintaining 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 a stage of rapid growth. 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, shareholders have no pledges, 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. We maintain the forecast in the third quarter forecast review. We expect the company's EPS for 18/19/20 to be 0.434/0.583/0.739 yuan. The company's closing price today (10.29) was 7.03 yuan, corresponding to 2018-2020 PE 16.2/12.1/9.5 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.