Key investment matters: The company announced its 2018 report, achieving operating income of 712 million yuan, a year-on-year increase of 56.45%; realized net profit of 83.22 million yuan, a year-on-year increase of 26.86%; realized net profit after deduction of 81.59 million yuan, an increase of 33.01%; and EPS of 0.69 yuan. The profit distribution plan is to pay 2 yuan for every 10 shares. Ping An's view: The company's performance is in line with expectations, and the impact of the two-vote system is obvious: in 2018, the company achieved revenue of 712 million yuan, an increase of 56.45% over the previous year. We believe that two of these voting systems had a significant impact. In terms of sales, the company's dosage forms accounted for the largest share of freeze-dried powder injections, cephalosporin injections, and tablet sales increased 28.47%, 7.6%, and 21.27%, respectively. The company achieved net profit of 83.22 million yuan, an increase of 26.86% over the previous year, which is basically in line with expectations. Net profit after deduction was 81.95 million yuan, an increase of 33.01% over the previous year. It still maintained a high growth rate, mainly from commissioned investment income and asset disposal income in 2018, which decreased by more than 4 million yuan compared to 2017. The company's gross margin increased markedly due to the increase in average price under the two-vote system, from 79.06% in 2017 to 86.23%. In contrast, in 2018, the company's three-rate rate was 71.02%, an increase of 11.01 pp over 2017, of which the sales expenses rate was 61.52%, an increase of 13.45 pp over 2017, which was also affected by the two-vote system. Core varieties were released rapidly, and R&D investment increased: In 2018, core varieties continued to be released at a high rate. Among them, torasemide sales were 293 million yuan, up 108.8% year on year, sales volume was 22.59 million sticks (equivalent to 10 mg), and sales volume was 22.59 million sticks (equivalent to 10 mg), up 53.75% year on year. In 2018, the company's market share in sample hospitals was 52.61%, and there is still room for further improvement; cefotiam sales were 111 million yuan, up 82.25% year on year, 7.2 million units (equivalent to 0.5 g), up 4.07% year on year; cefoxidione sales volume was 29.74 million yuan, up 306.78% year on year, sales volume 4016,000 units, up 44.95% year on year. Currently, it has been added to medical insurance in Jiangsu, Heilongjiang, Anhui, Shandong and other places, which are expected to be rapidly dosed through a new round of medical insurance adjustments; “superbiotic” Prime sales 28.29 million yuan, up 55.08% year on year, sales volume 74,700 units, up 87.74% year on year, and was covered by health insurance in 2017; lansoprazole sales were 73.05 million yuan, up 13.99% year on year, sales volume was 3.1 million yuan, and sales volume was 3.1 million units, up 7.25% year on year. In 2018, the company invested 49.77 million yuan in R&D, an increase of 40.34% over the previous year, accounting for 6.99% of revenue. During the reporting period, the company obtained approval for esomeprazole (40mg) production. The sample hospital size of this variety in 2018 was 1,386 billion yuan, corresponding to an actual market space of about 7 billion yuan. The company is expected to earn considerable revenue after listing; among the varieties being developed later, landilol and changchun cetin are expected to be approved in 2019. The supplementary application for the consistency evaluation of amlodipine and the marketing application for tigreloxin category 4 are under review. Rivaroxaban submits an application for registration. Dabigatran and apixaban are expected to complete the pharmaceutical evaluation and be carried out in the first half of 2019. Others, such as tenofovir, rigliptin, tofacib, and tovaptan, etc. are progressing smoothly. In the future, the company is expected to maintain the pace of launching 2-3 high-end generic drugs every year. The NMS innovation pipeline is rich in reserves and has launched Series A financing: Currently, NMS has authorized the transfer or cooperation of 9 varieties. Among them, the patent authorized Array company Encorafenib was approved for listing in June 2018. Enctrectinib transferred to Ignyta/Roche has entered the registration stage in the US, Europe, and Japan, and is expected to be approved in August 2019. Previously, the product received priority approval from the FDA. The global market is expected to be over 1 billion US dollars, and NMS will retain about 10% sales share; at the end of 2018, NMS will launch Series A financing, with plans to raise 80 million US dollars for NMS-P088 (flt/CSR/kit mutant inhibitor) and NMP293 (selective PARP1 inhibitor) Clinical phase I/II study of the variety (4 indications in total) and 3 other pre-clinical studies. The NMS follow-up pipeline is well-stocked, and in the Chinese market, it has reached a number of antibody-conjugated drug cooperative development agreements with Pharmaceuticals. The company is expected to benefit from NMS's innovation reserves and enhance innovation capabilities. Profit forecast and investment rating: The company's core products continue to be rapidly released, which is expected to benefit from a new round of health insurance adjustments. High-end generic drugs are expected to be launched one after another, NMS has launched Series A financing, and has a rich R&D pipeline. According to the company's annual report, we adjusted the company's EPS forecast for 2019-2020 from 0.93 yuan and 1.18 yuan to 0.94 yuan and 1.19 yuan. At the same time, we expect the 2021 EPS to be 1.48 yuan, and the current stock price corresponding to 2019 PE is 31.6 times, 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, Changchunxetine and landilol are expected to be approved in the near future, but drug reviews are likely to be delayed due to uncertain factors such as policies; 3) Uncertainties 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.