Event: The company released its 2018 three-quarter report: operating income for the first three quarters was 1,022 million yuan, up 38.48% year on year; net profit attributable to shareholders of listed companies was 226 million yuan, up 118.14% year on year; non-net profit attributable to shareholders of listed companies was 224 million yuan, up 135.62% year on year. Achieve an EPS of 0.64 yuan. In the Q3 quarter of 2018, the company achieved operating income of 367 million yuan, an increase of 56.63% over the previous year, and net profit attributable to shareholders of listed companies of 81,7299 million yuan, an increase of 228.00% over the previous year. Non-net profit attributable to shareholders of listed companies was $824.925 billion, an increase of 270.60% over the previous year. Achieve an EPS of 0.23 yuan. Opinion: 1. The rapid growth in performance in the first three quarters exceeded expectations, and the gross margin of pharmaceuticals increased markedly. The Q3 revenue growth rate increased markedly, Guangyu Yuanyuan's revenue growth rate in the previous three quarters was 38.48%, and net profit growth was 118.14%, exceeding our previous expectations. The company's overall gross margin increased by 2.32 pp compared to the same period last year, mainly due to the increase in pharmaceutical gross margin, which increased the company's performance to a certain extent. The company's Q3 revenue side growth rate was 56.63%. Compared with Q2, the revenue side growth rate in the third quarter increased significantly. On the one hand, the company increased its product promotion efforts; on the other hand, the confirmed revenue base for the 3rd quarter of 2017 was 234 million yuan, while the second quarter was 302 million yuan. The base for the second quarter was large, and the base for the third quarter was relatively small. Judging from the absolute value of revenue, 18Q3 and Q2 were 367 million yuan and 362 million yuan respectively, which was basically the same. By product sector, the revenue of the pharmaceutical industry is expected to be about 940 million yuan, an increase of 35-40%. Among the four major single products, Dingkundan is expected to have revenue of about 400 million yuan, a growth rate of 55-65%, and a growth rate of about 20-30%. The growth rate of Angong Niuhuang pills has accelerated, with a growth rate of over 100%. Niuhuang Qingxin pills have also achieved rapid growth. In terms of financial indicators, the three expense ratios: sales expense ratio, management expense ratio (including R&D expenses), and financial expense ratio were 41.56%, 9.87%, and 0.88%, respectively, compared to the same period last year, -6.12, -1.15, and +0.62 pp, respectively. The company's median expense ratio has maintained a steady downward trend, and the sales expense ratio has declined markedly. We judge that the main reason for the decline in the sales expense ratio is that with the increase in brand power, the company optimized its advertising strategy, stopped pursuing the high-profile advertising strategy of the CCTV platform, and instead strengthened media with a higher penetration rate among potential consumers, such as local TV, online media, and mass media, etc., and reduced advertising expenses by 30-40 on the premise of guaranteeing the effectiveness of advertising. The reason for the reduction in the management expense ratio is that the revenue side maintained a high growth rate. Expenses other than R&D expenses did not increase significantly, and the cost rate declined after the scale effect became apparent. The main reason for the increase in the financial expense ratio is the increase in interest expenses due to short-term loans from Guangyu, Shanxi. However, the overall change was small, and there was no obvious impact on the company's expense ratio. Accounts receivable and notes receivable: The company's accounts receivable for the third quarter. The sum of the notes receivable was $184 million and $1,067 million respectively, for a total of $1,251 million. Compared with the interim report data, there was an increase of $59 million, 0.75 million and $134 million respectively. Compared with Q2 and Q1, the company's accounts receivable and notes receivable continued to increase slightly. We have analyzed the reasons for the increase in the company's accounts receivable many times before (1) As a second-time enterprise, during the brand startup period, the company's bargaining power was weak. In order to speed up the expansion of sales terminals, it gave customers a certain billing period, causing accounts receivable to accumulate (2) The products currently produced by the company include Ding Kundan, Gui Lingji, Angong Niuhuang pill, and Niuhuang Qingxin pill, four major products. Higher. During the promotion period, even a small amount of underwriting will result in more accounts receivable (3) ) The company's business is expanding rapidly, causing new partners to continue to need to replicate the previous process of development, preparation, payment period, training, significant increase in sales volume, smooth repayment, and secondary purchase. We judge that for long-term development and the advancement of the company's strategy, the company will continue to vigorously promote Guiling Liquor in 2019, resume production of classic Chinese medicines and refined tablets, and strengthen drug account management to achieve a balance between company development and financial data health in 2019. PS: From a set of data, we can see the rapid development of the company's channels: in 2016, it developed more than 400 pharmacy chains nationwide, 39,336 OTC terminal stores, and developed a total of 734 hospitals throughout the year. The number of hospitals developed exceeded the total development of the previous five years. OTC terminal stores were 1.97 times the total of the previous 10 years; in 2017, 1,953 new hospital terminals were added, and about 600 pharmacy chains were added. By the end of 2017, the company had cooperated with more than 1,000 pharmacy chains, managed nearly 30,000 pharmacies, and covered nearly 100,000 terminals. In 2018, it is estimated that it will cover 180,000 pharmacies and manage more than 60,000. Cash flow: The company's cash flow at the end of the period was $200 million, with a net increase of -81 million yuan. Among them, net cash flow from operating activities was -270 million yuan, a decrease of 44 million yuan over the same period last year. The main reason for the negative operating cash flow and the decrease compared to last year was determined by the special period in which the company was developing and the development strategy chosen by the company: (1) As a second-time enterprise, in order to resume production and brand, the company invested a lot in brand promotion in the early stages, and the cash flow was tight. (2) Payments made by the company's commercial customers in the form of acceptance bills of exchange also have a certain impact on the company's cash flow and operating cash flow (3) During the period of rapid development, the company required more expenses for market expansion, further increasing cash expenses for operating activities (4) The construction of the company's new traditional Chinese medicine industrial park has led to a certain increase in cash expenses. With the continuous improvement of the company's brand strength and the smooth progress of terminal expansion, and the commencement of production of the new factory area, the company's account period is expected to be shortened, acceptance bills collected will be gradually reduced, marketing expenses will gradually stabilize, other expenses will be reduced, and operating cash flow is expected to improve markedly in '19. 2. The company's future highlights anticipate that the new plant will be put into operation to break through production capacity bottlenecks: The company's new plant has obtained pharmaceutical GMP certification on August 31. The scope of certification includes tablets, hard capsules, granules, powders, pills (paste pills, water pills, honey pills), pills (honey pills, concentrated pills), alcohol, oral liquid, and traditional Chinese medicine extraction. The company's approved GMP workshop has a production capacity of 100 million hard capsules (Guiling Group, etc.), 5,000 bottles of pills (Dingkundan honey pills, etc.), 80 million pills (Dingkundan honey pills, Angong Niuhuang pills, Niuhuang Qingxin pills, etc.), 30 million bottles of oral liquid (Dingkundan oral liquid, etc.), and 6.5 million bottles of alcohol (flavored with Guiling Liquor). According to data disclosed in the company's annual report, Gui Ling Ji's production capacity is about 2.5 times that of now, the pill production capacity of Dingkundan, Angong Niuhuang pills, and Niuhuang Qingxin pills is about 2 times that of now, the production capacity of Guiling Jiu Liquor is about 10 times that of now, and the production capacity of Ding Kundan's oral liquid is about 100 times that of before production was discontinued. Production capacity has been completely released, and there will be no capacity bottlenecks in the short to medium term. The company's strategic development will enter the second stage: from the end of 2018 to 2020, the company will resume production of six series of more than 40 classic Chinese medicines; in 2018, it will resume the middle-aged and elderly life extension series (flavored with turtle age), chronic disease series (such as manlu thirst quenching capsules), children's medication series (such as pediatric cough suppressant oral liquid, cold and fever-clearing granules, baby supplements), and in 2019, the heat-clearing and detoxification series (including ox yellow detoxification tablets, quenching the stomach, and western pills), and reviving the middle-aged and elderly people's life extension series in 2020 (including yellow yellow detox tablets, quenching the stomach, and xihuang pills) Rokumi Dihuang Pills, Chibai Dihuang Pills, etc.), Qing The Hot Detox series (Yinqiao Detox Pills, etc.) and Agastache Zhengqi capsules provide new impetus for the company's business growth, achieving a rich product line and balanced development between classic Chinese medicine, premium traditional Chinese medicine, health wine, and premium drink business segments. Health alcohol is expected to explode: the company's Guiling Liquor and Flavored Guiling Liquor are the main products of health wine, one of the company's three engines. Gui Ling Ji Liquor focuses on the high-end restaurant market, adding that Gui Ling Ji Liquor focuses on the hospital pharmacy market. After the company completed the health wine marketing team update in 2017, health wine rapidly expanded the regional markets of Jiangsu, Zhejiang, and Pearl River Delta in 2018. After the new factory is put into operation, health wine will release a production capacity of about 1 billion dollars, completely solving the problem of production capacity bottlenecks. The health wine sector may experience a major explosion in the second half of 2018. In the next 3-5 years, the health wine sector is expected to become an important growth point for the company's profits. The 2018 edition of the base drug catalogue adjustments brings opportunities: in the 2018 edition of the basic drug catalogue issued by the Health and Health Commission, the company's Ding Kundan (honey pills, big honey pills), Xihuang pills, and dendrobium noctilucent pills have newly entered the catalogue. The adjustment of the basic drug catalogue may enable the company's Dingkundan to further develop sales channels and enhance terminal coverage in the primary drug market. Furthermore, it is expected that the company will resume production of Xihuang pills in 2019. The inclusion of Xihuang pills in the national basic drug catalogue will help the company speed up the promotion of Xihuang pills. Conclusion: We estimate that the company's net profit for 2018-2020 will be 409 million yuan, 620 million yuan and 929 million yuan respectively, an increase of 72.84%, 51.67%, and 49.58%, respectively. EPS is 1.16 yuan, 1.76 yuan, and 2.63 yuan respectively, and the corresponding PE is 27x, 18x, and 12x, respectively. We believe that the company is a major potential stock in Chinese medicine consumer goods. The company's moat is strong, and the absolute competitive advantage of the four major single products can guarantee the company's long-term competitive barriers. With the resumption of growth in the company's premium traditional Chinese medicines, the release of production capacity for health alcohol, the resumption of production of classic Chinese medicines, and the introduction of premium tablets, the company is expected to continue its rapid growth in the early stages. As the company's brand power and bargaining power increase, the company's financial position will also improve. We maintain a “Highly Recommended” rating based on our optimism about the company's prospects. Risk warning: The growth rate of traditional Chinese medicine is slowing down, health alcohol promotion falls short of expectations, and cash flow cannot be improved in a short period of time.