Events:

The company issued an annual report: the income achieved in 2018 was 712 million yuan, an increase of 56.45% over the same period last year; the net profit was 83 million yuan, an increase of 26.86% over the same period last year; the net profit after deducting non-return was 82 million yuan, an increase of 33.01% over the same period last year; and the EPS per share was 0.69 yuan. Cash dividend of 2.00 yuan (including tax) for every 10 shares:

The main products are growing rapidly, and the superposition of "low opening to high opening" increases the overall income growth.

The revenue of Q4 in 2018 was 186 million yuan, an increase of 21.57% over the same period last year, which decreased significantly compared with Q1 (115.79%), Q2 (83.51%) and Q3 (42.64%). This is mainly due to the impact of "low opening to high opening" as the two-vote system was implemented at the end of 2017. Q4 eliminates this factor in 2018, which can be said to reflect the normal growth rate. For the whole year, the sales revenue of Torasemide for injection was 293 million yuan, an increase of 108.80% over the same period last year, and sales of 22.593 million units (equivalent to 10mg), an increase of 53.75%. The sales revenue of cefotiam for injection was 111 million yuan, an increase of 82.25% over the same period last year, and sales volume was 7.2023 million (equivalent to 0.5g), an increase of 4.07% over the same period last year. Sales of lansoprazole for injection were 73.0487 million yuan, an increase of 13.99% over the same period last year, and sales were 3.0965 million, an increase of 7.25% over the same period last year. The sales revenue of cephalosporin sodium for injection was 29.7373 million yuan, an increase of 306.78% over the same period last year, and the sales volume was 401600, an increase of 44.95%. The sales revenue of tegacycline for injection was 28.2919 million yuan, an increase of 55.08% over the same period last year, and sales volume was 74700, an increase of 87.74% over the same period last year.

A significant increase in sales costs affects performance.

The comprehensive gross profit margin in 2018 was 86.23%, an increase of 7.17% over the same period last year, mainly due to a substantial increase in revenue caused by the two-vote system. Similarly, the sales expenses increased significantly. The sales expenses in 2018 were 438 million yuan, an increase of 100.23% over the same period last year. As a result, the overall sales expense rate increased to 61.52%, an increase of 13.45% over the same period last year, but a decrease compared with 62.11% in the first three quarters. In terms of research and development, the company invested 50 million yuan in 2018, an increase of 40.34% over the same period last year. In 2018, the new specifications of esomeprazole sodium for injection (40mg) and adenosine arabinoside monophosphate for injection (0.1g) were successfully approved; in addition, randilol hydrochloride and vinpocetine injection are expected to be approved in 2019.

NMS Group innovation is progressing smoothly and is expected to continue to harvest.

Among the two products authorized by NMS Group, Conafenib was successfully approved by FDA to be listed in the United States on June 27th, 2018; Entratinib has applied for NDA in Europe, America and Japan, and is expected to be approved in 2019. We believe that these two licensed products are expected to bring rich revenue with the broad market space. In addition, the NMS Group's own product pipeline is also accelerating: NMSP088 (FLT3/ KIT/CSF1R inhibitors) has launched phase I trials in Europe, and NMS-P293 (a new generation of selective PARP1 inhibitors) is expected to complete clinical applications and start phase I trials in the first half of 2019. These self-owned products will become the reserve innovation varieties of Haichen Pharmaceutical Co., Ltd., which will greatly improve the company's innovation ability and further enrich the product pipeline.

Maintain the recommended rating.

We estimate that the EPS of the company from 2019 to 2021 will be 0.91,1.17,1.41 yuan respectively, and the current valuation is at a reasonable level, but considering the continued growth of performance, the innovation value of NMS Group is expected to be reflected one after another, and we are optimistic about the long-term development of the company and maintain the "recommended" rating.

Risk Tips:

The risk of drug price reduction; the slow progress of product research and development; the slower than expected sales promotion and so on.