Event: Ruikang Pharmaceutical announced its 2018 three-quarter report. From January to September, the company achieved operating income of 24.56 billion yuan, an increase of 47.45%; realized net profit of 833 million yuan, an increase of 15.38% over the previous year; and achieved net profit of 9.048 billion yuan and 253 million yuan in the third quarter, respectively, up 44.55% and 21.54% year-on-year respectively, of which non-net profit was 250 million yuan, up 28.71% year on year. The company forecasts a profit range of 11.09 to 1,270 billion yuan for the whole year, an increase of 10% to 26%. Comment: The third quarter results were slightly lower than our expectations. One-off financial expenses were the main drag. The gross profit margin for the third quarter was 20.1%, the management expense ratio and the financial expense ratio were 6.69% and 4.16%, respectively, which remained stable from the previous quarter, while the financial expense ratio rose from 1.31% to 3.23%, which is the main reason why profit growth in the third quarter was significantly lower than the revenue growth rate. Financial expenses for the third quarter were 292 million yuan, an increase of 141% over the previous year. On August 30, the company officially issued the China Merchants Wealth Ruikang Pharmaceutical Accounts Receivable Phase II Asset Support Special Plan, with a scale of 1.25 billion yuan. The one-time confirmed financial expenses for the current period were about 60 million yuan, which was the main influencing factor in the high increase in financial expenses. The comprehensive interest rate for ABS is about 6.3% and lasts no more than 5 years. After the first payment of about 5% of the fee is confirmed, the remaining portion of finance confirmed each quarter for the next 3 quarters will be drastically reduced, and the financial expenses for the following years will be shared evenly every quarter. Internal control was strengthened, and operating cash flow continued to improve significantly: Beginning in the second quarter, the company used cash flow performance as one of the most important business assessment indicators for subsidiary companies. After the launch of the SAP system, the company can control the sales and repayment situation of its subsidiaries in real time, distribute cash resources rationally through objective business data evaluation, strengthen the management and control of accounts receivable and prepaid accounts, and the innovative use of supply chain finance. The company's operating cash flow continued to improve drastically. From -34 million yuan in the second quarter to 300 million yuan in the third quarter (excluding ABS contributions), these are the two quarters with the best cash flow performance of the company in recent years. Plan employee stock ownership plans to boost confidence. The company announced on the 22nd that it is planning the first phase of the 2018 employee stock ownership plan. Shares will be obtained through secondary markets and bulk transactions. The plan plans to hold no more than 5% of the company's total share capital. The plan holders are the company's key employees, and their enthusiasm is expected to be further mobilized. Profit forecast and investment advice: Referring to the performance forecast and considering the company's plans to actively control revenue growth and strengthen cash flow management, we expect the company's earnings per share in 2018-2020 to be 0.80 yuan, 0.98 yuan, and 1.20 yuan respectively. We gave the company 16-18 times PE in 2019, corresponding to the target range of 15.7-17.6 yuan, maintaining the “buy” rating. Risk warning events: acquisition integration work falls short of expectations, risk of equipment price reduction due to industry policies; progress in the “two-vote system” of equipment falls short of expectations; risk of sharp tightening of the financing environment.