Matters: the company released the third quarter report of 2020, the operating income in the first three quarters was 1.749 billion yuan, + 3.45% compared with the same period last year; the net profit was 270 million yuan, + 2.96%, and the net profit was 258 million yuan, + 5.12%; the net cash flow generated by operating activities was 338 million yuan.

In the third quarter alone, the operating income was 575 million yuan, + 10.06% compared with the same period last year; the net profit returned to the mother was 92 million yuan, + 17.75% compared with the same period last year; and the net profit was 87 million yuan, + 15.17% compared with the same period last year.

The performance of Q3 exceeded expectations, and the combination of "dredging collaterals and activating blood circulation" drove income growth. Q3 realized operating income of 575 million yuan, + 10.06% of the same period last year, and net profit of 92 million yuan, 17.75% of the same period last year. From the perspective of income composition: in the first three quarters, the income of plaster / capsule / ointment / tablet was 10.60 trillion yuan respectively. Among them, through the innovative combination of Tongluo Qutong Ointment and Huoxue Xiaotong Tincture, the two products in the first three quarters were + 13% and + 35% respectively compared with the same period last year, contributing to performance growth. From the perspective of cost: the overall gross profit margin of Q3 is 78.05%, the net profit rate is 15.34%, the sales expense rate / management expense rate / R & D expense rate is 49.91%, 9.59%, 2.84% respectively, compared with the same period last year-0.7pct/+2.15pct/+0.82pct, the construction and promotion of online e-commerce channels will also effectively reduce marketing costs, greatly improve human efficiency, and reduce the overall sales expense rate.

The quality of the paste enhances the profit space, and the scene marketing broadens the potential consumer population. Classic plaster products gradually replace general medicine, and the profit margin is significantly improved. (1) from the point of view of the company's income, the price of a box of Zhuanggu musk pain ointment is 5 yuan and 10 stickers, while the price of a box of fine products is 20 yuan and 10 stickers, and the price of each paste is increased from 50 cents to 2 yuan. (2) from the point of view of channel profit, the price of Zhuanggu musk analgesic ointment is more than 4 times that of general medicine, and the dealer can get higher profit, which will promote the high-quality product more actively, which will also accelerate the substitution of high-quality products and the penetration of the terminal market. By sponsoring events and other ways, the company will accurately launch its products to younger sports groups to convey the brand concept of "Love without pain" of Lingrui Pharmaceuticals. The company also plans to upgrade the packaging of the original products, pay more attention to the sense of youth and refinement in packaging design, promote the image transformation of "sports", "fashionable" and "younger" of the antelope brand, and deeply integrate the diversified needs of consumer levels and consumer groups. In addition, the company also revolves around the product portfolio of "dredging collaterals and activating blood circulation", aiming at the bone pain of sports people and the troubles of shoulder and neck disease of office workers, enhance the stickiness of young consumers, and release the attraction and appeal of sports people.

Profit forecast and investment advice: the company's management team is younger and professional, injects more fresh blood and advanced management ideas into the company, and improves management efficiency. At the same time, the brand concept is closer to the young consumer group, which helps to upgrade the antelope brand. Driven by the continuous optimization of product structure, the continuous upgrading of brands and the accelerated expansion of channels, it will bring long-term and sustainable marginal profits. We forecast that the company's operating income from 2020 to 2022 will be 2.424 billion yuan, 2.787 billion yuan and 3.259 billion yuan respectively, an increase of 12.4%, 15.0% and 16.9% respectively over the same period last year. The net profit of homing was 343 million yuan, 419 million yuan and 526 million yuan respectively, an increase of 16.6%, 21.9% and 25.5% respectively over the same period last year. The reversion EPS was 0.60, 0.74 and 0.93, respectively. Corresponding to the closing price on October 29, PE was 16X/13X/10X, maintaining the "recommended" rating.

Risk tips: the progress of research and development is not as expected, the promotion of new products is not as expected, the effect of sales reform is not as expected, the risk of fluctuation of raw material costs, the risk of brand upgrade failure, and so on.