Key investment matters: The company released the 2018 annual performance report and achieved operating income of 712 million yuan, an increase of 56.45% over the previous year; realized net profit of 83.24 million yuan, an increase of 26.88% over the previous year; and EPS of 0.69 yuan. The company's performance was in line with previous expectations. Ping An's view: The company's performance is in line with expectations, and core varieties continue to expand: According to the performance report, the company achieved revenue of 712 million yuan in 2018, an increase of 56.45% over the previous year, maintaining a rapid growth trend, mainly due to the continuous rapid expansion of existing varieties. We expect the annual sales volume of the core variety torasemi to exceed 20 million sticks, with a growth rate of about 60%, with sales of about 280 million yuan, an increase of 100% over the previous year; at the same time, sales of the second-tier varieties cefotiam and lansoprazole are expected to exceed 100 million yuan and 70 million yuan respectively, with growth rates of around 100% and 20%. Tigecycline and cefoxidione use medical insurance to adjust rapid dosage, but currently the base is small, and they are key varieties in the future. The small stock of existing varieties is limited by volume procurement, and there are abundant reserves of high-quality generic drugs: the company's current varieties are scattered. Judging from the situation in the three-quarter report, with the exception of tolasemide, sales are not more than 100 million yuan, which is less affected by volume procurement. Currently, the company focuses on high-quality generic drug research and development. In December 2018, esomeprazole was successfully approved. The sales volume of this type of hospital sample reached 1,216 billion yuan, and AstraZeneca accounted for more than 80%. The company is expected to seize a certain share through import substitution and bring considerable revenue. Among the subsequent varieties, vinpocetine and landiolol are likely to be approved in '19. Other varieties, such as rivaroxaban, have already carried out BE (bioequivalence tests), and apixaban, dabigatran, etc. will soon begin BE, which is expected to guarantee that 2-3 high-end generic drugs will be approved for marketing every year. NMS has launched a round of financing for research and development, and emtrutinib is expected to be approved in 2019: NMS, the Italian anti-tumor drug research and development agency where the company participated in mergers and acquisitions, launched the first round of financing in December 2018, and plans to raise 80 million US dollars for NMS-P088 (flt/CSF1r/kit mutant inhibitor) and NMS-P293 (selective PARP1 inhibitor) (a total of 4 indications) and preclinical studies of 3 other projects; currently NMS has 9 varieties External licensing, where Encorafenib and emtrutinib have great potential. Encorafenib was approved by the FDA on June 28, 2018 in combination with binimetinib to treat patients with unresectable or metastatic melanoma with BRAF V600E or BRAFV600K mutations. Assuming that the annual sales volume after marketing reaches 500 million US dollars or more, NMS's annual sales commission revenue will reach 10 million US dollars (2% sales commission). Emtrutinib recently received priority review by the FDA and is expected to be approved in 2019. The global market is over 1 billion US dollars. NMS has retained a sales share of around 10%, and will bring in more than 100 million US dollars in revenue every year in the future. Profit forecast and investment ratings: The company's core products continue to be released rapidly, high-end generic drugs are expected to be launched one after another, and the Hong Kong listing process has been initiated after NMS delivery. The company and actual controller are collectively the largest shareholders of NMS, and the company will benefit from the valuation premium of NMS after listing in Hong Kong. According to the company's performance report, we adjusted the company's 2018-2020 EPS forecast to 0.69 yuan, 0.93 yuan, and 1.18 yuan (originally 0.75 yuan, 1.02 yuan, and 1.27 yuan). The current stock price is 28.1 times that of PE in 2019, maintaining the “recommended” rating. Risk warning: 1) The scope of volume procurement has expanded beyond expectations: the varieties that won the bid for the first time in volume procurement have been implemented one after another, and it is likely that the second pilot will be launched in 2019. The variety and scope of the pilot added to the second volume procurement will be greatly expanded, involving multiple varieties of the company, which will adversely affect the company; 2) R&D progress falls short of expectations: Currently, the company has several R&D projects in the registration process. Among them, the drug review is expected to be approved in the near future, but drug reviews are likely to be delayed due to policy and other uncertainties; 3) Uncertainty such as policies Current NMS The first round of financing has been initiated to support ongoing research projects, but there are still large capital requirements in the future. Failure to resolve it well will affect the integration and cooperation between the company and NMS.