Company News The company released its report for the third quarter of 2018. Incident review revenue continued to grow at a high rate. The year-on-year rise in Q3 financial expenses dragged down profit growth. The company achieved operating income of 24.556 billion yuan in the first three quarters of 2018, an increase of 47.45% over the previous year; realized net profit attributable to the parent company of 833 million yuan, an increase of 15.38% over the previous year. The main reason for the profit growth rate being lower than the revenue growth rate was the one-time impact of the 2017 H1 adjustment of the accounts receivable aging analysis method. On a quarterly basis, the company achieved operating income of 9.048 billion yuan in 2018, an increase of 44.55% over the previous year; realized net profit attributable to the parent company of 253 million yuan, an increase of 21.54% over the previous year. The main reason why the profit growth rate was lower than the revenue growth rate was the increase in financial expenses. The company's gross sales margin for the first three quarters of 2018 was 19.72%, an increase of 2.37 percentage points over the previous year, mainly due to changes in product structure and other factors. The company's expense ratio for the first three quarters of 2018 was 12.59%, up 2.00 percentage points year on year, of which the financial expense ratio was 1.89%, up 1.21 percentage points year on year. The main reason was the increase in external financing, etc., and the China Merchants Wealth - Ruikang Pharmaceutical Accounts Receivable Phase II Asset Support Program was formally established on August 30, with a total scale of 1,249 billion yuan and a coupon interest rate of 6.2% per year. The cash flow pressure brought about by the rapid expansion of the company's business was relieved through ABS and other financing methods. Quarterly improvement in operating cash flow The company began to launch the SAP system in October 2017. By the end of June 2018, the company's SAP system had launched 178 subsidiaries. It is expected that all subsidiaries will launch the SAP system within 2018 to refine and informationalize the business development status and capital trends of the subsidiaries, and improve the company's operational management capabilities and profitability in the long run. On a quarterly basis, the company's net operating cash flow in 2018 Q1-Q3 was -2348 million yuan, -034 million yuan, and 1,498 million yuan respectively. Operating cash flow improved quarterly. Risks suggest that the implementation of the two-vote system falls short of expectations; the speed of mergers and acquisitions is not as good as expected; the risk investment proposal for the next six months, maintaining the “increase in holdings” rating, taking into account the company's external financing growth, adjusts the company's EPS in 18/19 to 0.80 and 0.94 yuan. Based on the closing price of 8.40 yuan on October 29, dynamic PE is 10.79 times and 9.08 times, respectively. We believe that the company has completed the construction of direct sales channels in 31 provinces and municipalities directly under the Central Government. Improving operational capacity and profitability through digital transformation is expected to maintain rapid growth in the equipment business and maintain the “increase in holdings” rating.