Company News The company released its report for the third quarter of 2018. Event review Q3 The year-on-year growth rate of the revenue side increased compared to the first half of the year. The company achieved operating income of 22.197 billion yuan in the first three quarters of 2018, an increase of 2.71% over the previous year; realized net profit of 1,244 billion yuan, an increase of 23.08% over the previous year; and achieved net profit after deduction of 1,092 billion yuan, an increase of 14.13% over the previous year. On a quarterly basis, the company achieved operating income of 7.668 billion yuan in 2018 Q3, an increase of 7.39% over the previous year, and an increase in revenue growth rate compared to the first half of the year; realized net profit of 401 million yuan, an increase of 16.63% over the previous year; and realized net profit deducted from non-return net profit of 321 million yuan, an increase of 1.22% over the previous year. The main reason for this is that Q3 non-operating income was significantly higher than the same period last year due to changes in subsidiary debt amounts. The company's gross sales margin for the first three quarters of 2018 was 22.01%, up 7.95 percentage points from the previous year, mainly due to factors such as revenue structure adjustments. The company's sales expense ratio for the first three quarters of 2018 was 10.98%, up 6.66 percentage points from the previous year. The main reason is that due to factors such as the high growth in sales scale in the industrial sector and medical policy reforms, the company has increased refined investment efforts, and sales services and publicity expenses have increased significantly over the same period. Continue to promote commercial network layout The company's pharmaceutical business sector continues to implement the “Point Strength Network” network layout, actively adjust the business structure, and accelerate regional expansion. Following the acquisition of Hebei Jinlun and Shenyang Zhuying in the first half of the year, investing in Qiqihar Zhongrui, and joint ventures to establish new Jiangmen Company and Shenzhen Company, the company set up joint ventures in Shenzhen and Qinhuangdao in September and October 2018 to build regional pharmaceutical business platforms, increase the proportion of pure sales business while strengthening commercial network channels in regional markets such as Liaoning, Hebei, and Guangdong, further improving the profitability of the commercial sector. Risks indicate industry policy risks such as the two-vote system; overseas trade contracts fall short of expectations; and asset injection falls short of expectations. The investment proposal is to maintain the “prudent increase in holdings” rating over the next six months. The company's EPS for 2018 and 19 is expected to be 1.44 and 1.72 yuan. Based on the closing price of 15.16 yuan on October 26, dynamic PE is 10.50 times and 8.82 times, respectively. We believe that the company, as the only pharmaceutical industry platform under the General Technology Group, promotes the integration of the three major businesses of industry and trade. On the one hand, the industrial sector is expected to maintain a relatively rapid performance growth rate by optimizing the product structure and strengthening marketing; on the other hand, the commercial sector has strong endogenous growth capacity by strengthening the commercial network layout and expanding the pure sales business in the context of the “two-ticket system”. For the next six months, maintain the “prudent increase in holdings” rating.