The 2018 fiscal year results were in line with expectations. Revenue increased 11.1% year over year to 1,844 billion yuan (RMB. Same below). Among them, Kangson Pharmaceutical and Yulin Pharmaceutical segments increased 14.9% and 4.1% respectively. The ratio of sales costs and administrative expenses fell 2 percentage points to 30.5% and 1.2 percentage points to 5.9%, respectively, mainly due to a decrease in sales bonuses related to sales performance. Net profit margin increased 1.4 percentage points to 25.2%, and net profit increased 17.4% to $465 million. Revenue was 3.1% lower than our forecast, and net profit was 1.6% higher than our forecast. Overall, 2018 results were in line with expectations.
Kangson's business continued to grow steadily. Sales of nephrology drugs increased 13.9% year-on-year to 928 million yuan. We anticipate that the leading product, urea tablets, will maintain a CAGR of 13% in 2018-21, benefiting from increased penetration in the OTC market and low-end medical markets, as well as rising demand in the future primary care market for inclusion in the 2018 edition of the National Essential Medicines Catalogue. Sales of medical imaging contrast agents increased 6.9% to $128 million, and sales increased 12%. Due to the expiration of the original clinical trial ingredients, the company will re-submit the clinical trial application for iopanol injections. The launch of this product is expected to be delayed until 2021. Maternal and pediatric drug sales increased steadily by 18.2%, mainly due to the shift in sales model from agents to self-employment and increased marketing investment. We believe that Kangchen's business will continue to grow in double digits over the next three years, mainly due to the inclusion of core products in the new essential drug catalogue and the expansion of market channels.
Yulin business is slowing down. As a result of restructuring the sales force and re-sorting of terminal coverage, Yulin recorded only 4.1% growth in 2018. Among them, orthopedic drugs increased 11.5%, dermal drugs increased 0.5%, and hepatobiliary drugs increased 8.5%. We expect the Yulin business to continue to record high unit growth. Furthermore, the company is advancing research and preparations for the spin-off of Yulin Pharmaceutical to China's A-share listing.
The working capital situation has improved. Kangson recorded operating cash inflows of $750 million in 2018, mainly due to 1) receivables management that reduced accounts receivable by 11%, 2) stable inventory and payables, and 3) Yulin Pharmaceutical recorded a net operating cash inflow of 137 million yuan (compared to an outflow of 56.5 million yuan in 2017).
2019E/20E net profit was reduced by 4.4%/7.3%. We lowered our 2019 E/20E revenue forecast by 7.1%/9.5% to reflect Yulin's poorer than anticipated growth and delays in the launch of iodopanol injections and ultrasound microfoam contrast agents. The 2019E/20E net profit forecast was lowered by 4.4%/7.3%, respectively. We expect sales growth of 10%/12% and net profit growth of 9.6%/12.5% for the 2019 E/20E.
Maintain buying, with a new target price of HK$8.40; the valuation is attractive. We estimated a new target price of HK$8.40 until 2019 based on the latest DCF model. Currently, Kangchen's valuation is the predicted price-earnings ratio of 8.6 times in 2019 (the average price-earnings ratio of the Chinese medicine industry is 12.1 times). The valuation is quite attractive, with a dividend yield of about 4%. Our target price corresponds to a price-earnings ratio of 12.1 times in 2019, with a potential increase of 39.8%.