Our judgment: the larger the company, the more growth points, the stronger the strong. From a leader in the entire traditional Chinese medicine industry to a leader in pharmaceutical distribution and services (online and offline), the company is building a pharmaceutical manufacturing+service giant with a Chinese model. Business growth has changed from being mainly driven by the traditional Chinese medicine industry in the past to a situation where multiple businesses collaborate together. The EPS for 18-20 is expected to be 1.03/1.26/1.53 yuan, respectively, and the current stock price corresponding to PE is 26.41/21.53/17.78 times, respectively, maintaining the “buy” rating. Key points supporting ratings The layout of the entire traditional Chinese medicine industry chain: from simply relying on “manufacturing-sales” to the flourishing of rapid growth through various models. Chinese medicine tablets: Three magic tricks (full industry chain advantage, industry standard setter advantage, and strong terminal channel control advantage) to ensure that the company's market share continues to increase. The smart pharmacy has a comprehensive layout of more than 10 Tier 1 and 2 cities and hundreds of hospitals, including Shanghai, Beijing, Guangzhou, Shenzhen, Rong, Yulu, and Kungui. On the one hand, it has rapidly expanded its market share of tablets, and on the other hand, it has formed deep cooperative relationships with counterpart hospitals, laying a good foundation for the further “Internet+Medical Service” O2O model and the promotion of pharmaceutical business. In terms of production capacity: The production capacity of 60,000 tons of Chinese medicine tablets leads the industry, and 6,000 tons of formula granules can be put into production at any time. The comprehensive and deepening of the medical service and pharmaceutical business layout: the company is currently building or merging 4 hospitals on its own, and has more than 10 projects in reserve in cooperation with various provincial and municipal governments. It is expected that the next two to three years will gradually advance through various methods such as mergers and acquisitions funds, and the company is expected to form a Chinese model pharmaceutical manufacturing+service giant. Adequate book capital benefits from early reserves, and in the future, we will enter a stage where the quality of business continues to improve: in recent years, the company's operating quality has continued to improve. With the share of pharmaceutical business revenue increasing, net operating cash flow can continue to improve steadily, showing that the cash flow business represented by Chinese medicine tablets has entered a stage where the larger the scale, the faster the growth, and the better the quality of operation. We estimate that the company's major capital expenditure in the next 3 years will be around 7 billion yuan. The company will ensure the smooth progress of subsequent important investment projects through operating income and multi-channel financing. The main risks faced by ratings are the risk of insufficient talent in the context of rapid business expansion, and the risk of the macroeconomic situation. The valuation estimates that the 2018-20 EPS will be 1.03/1.26/1.53 yuan, respectively, and the corresponding PE is 26.21/21.53/17.78 times. Using the segmented valuation method, the company's reasonable valuation in 18/19/20 will reach 151.3 billion/187.2 billion/229.5 billion yuan. Using the 19-year PE valuation as a reference, a one-year target price of 37.64 yuan is given, corresponding to the current stock price increase of 38.37%, maintaining the “buy” rating.