Incident: The company released its annual report. Net profit from the mother increased by 33.20% year on year. In 2018, the company achieved operating income, net profit from the mother, and net profit after deducting non-return to the mother to 4.403 billion yuan, 506 million yuan, and 493 million yuan, up 14.56%, 33.20%, and 34.71% year-on-year respectively. In 4Q18, the company achieved operating income, net profit after net profit, and net profit after deduction of net profit of 1,067 million yuan, 114 million yuan, and 101 million yuan, respectively, down 5.46%, 6.61%, and 12.19% from the previous year. The fourth-quarter performance growth rate declined month-on-month. Looking at the whole year, the business sector represented by commercial subsidiaries maintained rapid growth. Judging from the situation throughout the year, commercial subsidiaries maintained rapid growth. Among them, Renhe Pharmaceutical is mainly responsible for brand products. Revenue and profit in 2018 were 824 million yuan and 200 million yuan respectively, up 15.39% and 53.93% year on year. The share of products with high gross margin increased, and the share of high gross margin products increased, while the share of OEM declined, and the profit margin increased by 6.08 pct year on year. Originally responsible for general medicine and OEM business, Ren and Zhongfang first implemented direct control terminal business and had strong sales capacity. It achieved revenue and net profit of 1,703 million yuan and 218 million yuan in 2018, up 23.94% and 72.08% year-on-year respectively. Heli Pharmaceutical is another important commercial company. It achieved revenue and net profit of 1,173 million yuan and 64 million yuan in 2018, with year-on-year increases of 65.68% and 70.25%, respectively. The continued increase in the proportion of its own products will drive the increase in gross margin, and the company has promoted industrial upgrading in recent years, producing its own approved products as much as possible, and reducing its dependence on OEMs. Judging from annual reports, several core industrial companies all grew rapidly (Tonggu Renhe, Yaodu Renhe, Shining Pharmaceutical, and Jiangxi Pharmaceutical grew by 32.45%, 26.50%, 28.91%, and 56.09%, respectively). The increase in the share of own products has brought about a continuous increase in gross margin. The company's overall gross margin in 2018 was 42.98%, an increase of 4.05 pct over the previous year. Currently, OEM still accounts for around 40%, and there is still room for replacement of own products in the future. The performance for 19-21 is expected to be 0.52 yuan/share, 0.65 yuan/share, and 0.80 yuan/share, respectively. The company is one of the brand OTC companies with the strongest sales capacity in China. Industry policy changes favor sales control model sales, and the company promotes the implementation of a gold single product strategy, management and incentive mechanism. The company's EPS for 19/20/21 is estimated to be 0.52/0.65/0.80 yuan. The current stock price corresponds to PE 17/14/11 times, giving the comparable industry average of 2019 PE20X, corresponding to a reasonable value of 10.34 yuan/share, maintaining a “buy” rating. Risks indicate the risk that product sales will fall short of expectations due to increased competition in the industry; the risk that industry policies will be unfavorable to products; and the risk that OEM business production will be unstable.