3Q18 revenue growth accelerated, and performance fell short of expectations. On the evening of October 26, the company released the 2018 third quarter report. From January to September 2018, it achieved operating income of 22.197 billion yuan (+2.71%), net profit of 1,244 billion yuan (+23.08%), net profit after deducting non-attributable net profit of 1,092 billion yuan (+14.13%), 3Q18 achieved revenue of 7.668 billion yuan (+7.39%), and revenue growth accelerated. Net profit of 401 million yuan (+16.63%) was deducted from the net The profit of 321 million yuan (+1.22%) fell short of expectations, mainly due to the high base of non-net profit deducted in Q3 last year and the pressure on the API business. We adjusted our profit forecast. We expect the company's EPS for 2018-2020 to be 1.51/1.70/1.96 yuan, respectively, and adjust the target price to 17.02-18.72 yuan to maintain the “buy” rating. The impact of high operating expenses continued. The gross margin and sales expenses ratio increased year over year. The company's gross profit margin for the first three quarters of 2018 was 22.01% (year over year +7.95pct), sales expenses ratio 10.98% (year over +6.66 pct), management expense ratio 2.33% (year over +0.49pct), and financial expenses ratio 0.25% (year over +0.02pct). The increase in gross margin and sales expenses ratio was mainly affected by the high opening of the industrial sector. Industry: APIs are under pressure, dragging down performance in the first three quarters of 2018. Prices in the API market fluctuated, gross margin declined, and at the same time, the company actively controlled goods. We estimate that from January to September 2018, the net profit of APIs fell 10-15% year on year. Zhongjian's CSO business is progressing steadily. We estimate that the net profit of the industrial sector increased by 10-15% year-on-year from January to September 2018 (regardless of the disposal of 59 million yuan in revenue from Shanghai Pukang). Business: Sinking channels and improving the network layout in the first three quarters of 2018. In order to meet the requirements of the “two-ticket system”, the company has basically completed the allocation of business switching. We expect the net profit of the industrial sector to increase 15% year-on-year from January to September 2018. The company has stepped up efforts to sink channels. In addition to acquiring Qi Zhongrui, Shenyang Zhuying, and Henan Aisen, it continues to set up subsidiaries in Guangdong and Henan prefecture-level cities, and has further improved its business network. Trade: Focusing on high-margin business, steady growth companies continue to carry out business line reforms, optimize business structures, concentrate resources on high-margin businesses such as foreign aid, and raise net profit levels. We expect net profit in the trade sector to increase by about 10% from January to September 2018 (regardless of the investment income of the parent company). Low valuations, maintaining “buy” ratings Since the performance of the industrial sector fell short of expectations, we adjusted our profit forecast. The company's net profit for 2018-2020 is estimated to be 16.09/18.18/2,094 billion yuan (previous value was 16.65/20.70/2,545 million yuan; the 2018 forecast includes 59 million yuan in disposal of investment income from Shanghai Pukang and non-operating income due to changes in debt payments to subsidiaries of 93 million yuan), up 21%/13%/15% year on year. The current stock price corresponds to 2018-2020 The annual PE valuation is 10x/9x/8x, respectively, and the valuation is low. Considering that the API business fell short of expectations, the average PE valuation of similar companies in 2019 was 12x. We believe that the company's 2019 PE valuation of 10x-11x is more reasonable, and the target price was adjusted to 17.02-18.72 yuan to maintain the “buy” rating. Risk warning: The implementation of the CSO model fell short of expectations; drug price reductions exceeded expectations.