Core view: Event: The company released a quarterly report. Net profit from the mother increased by 34.20% year on year 1Q19. The company achieved operating income, net profit from the mother, and net profit after deducting non-return net profit of 1,190 million yuan, 143 million yuan, and 141 million yuan, respectively, up 13.98%, 34.20%, and 33.60% year-on-year. In 2018, the company achieved operating income, net profit from the mother, and net profit after deduction of net profit of 4.403 billion yuan, 506 million yuan, and 493 million yuan, up 14.56%, 33.20%, and 34.71% year-on-year respectively. It is expected that the rapid growth trend of commercial subsidiaries will be maintained. Judging from the situation throughout 2018, commercial subsidiaries have grown rapidly. The growth rate in the first quarter of 2019 is close to that of 2018. We expect this growth trend to continue. In 2018, Renhe Pharmaceutical, which is responsible for brand products, had annual revenue and profit of 824 million yuan and 200 million yuan respectively, up 15.39% and 53.93% year on year. The share of high gross margin products increased, and the share of OEM products decreased, 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 the 2018 annual report, several core industrial companies all grew rapidly (in 2018, Tonggu Renhe, Yaodu Renhe, Shining Pharmaceutical, and Jiangxi Pharmaceutical increased by 32.45%, 26.50%, 28.91%, and 56.09% year-on-year respectively). The increase in the share of self-products has brought about a continuous increase in gross margin. In 1Q19, the company's overall gross margin was 42.51%, an increase of 0.67pct over the previous year. Currently, OEM still accounts for about 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 16/13/10 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.