Event: according to the company's quarterly report for the third quarter of 2018, the company realized income of 13.163 billion yuan in the first three quarters, an increase of 28.8% over the same period last year, and a net profit of 260 million yuan, an increase of 29.9% over the same period last year. The net profit after deduction was 256 million yuan, an increase of 24.5% over the same period last year. The revenue of the third quarter was 4.64 billion, an increase of 26.0% over the same period last year, and the non-net profit was 74 million, up 27.0% over the same period last year. The company announced that the company intends to use its own capital of RMB 15 million to increase the capital of Liaoning Jiashitang Pharmaceutical Co., Ltd., a wholly-owned subsidiary.
Comments: the performance of the third quarter is in line with our expectations. The growth rate of deduction non-profit in the third quarter was 27%, slightly faster than the 23.5% growth in the first half of the year. The revenue in the third quarter was 1.9% lower than that in the second quarter, which we believe is related to the company's seasonal fluctuations. The company's revenue in the second quarter increased by 35% compared with the same period last year, the highest quarterly revenue growth rate in the past two years.
The overall performance of the operating data is good: the gross profit margin of the third quarter is 9.93%, which is higher than that of the second quarter by 0.3pct and 1.71pct over the same period last year; the profit margin excluding the two expenses is 5.62%, up 0.7pct from the same period last year; the financial expense rate is 1.09%, and the financial expense rate shows an upward trend so far from the beginning of the year. In terms of operating data, the company's accounts receivable management is good, with turnover days reduced from 126days at the beginning of the year to 114days at present, and no financial instruments such as ABS are used.
Business development in other areas is expected to speed up: the company announced that it intends to use its own capital of RMB 15 million to Liaoning Jiashitang Pharmaceutical Co., Ltd., a wholly-owned subsidiary of Liaoning Jiashitang Pharmaceutical Co., Ltd., one of the company's earliest GPO projects, has been running well since its inception; it has an income of 140 million in 2017, with a net interest rate of nearly 3%; the announcement points out that the increase in capital will help subsidiaries to further expand their business locally. We believe that after the entry of Everbright Group, with a strong shareholder background and the group's financial support, the company's business expansion in other parts of the country is expected to accelerate.
Earnings forecast and investment advice: we expect the company's earnings per share in 2018-2020 to be 1.36,1.73,2.13 yuan, respectively, and the current share price is only 11 times and 8 times in 2018 and 2019, far lower than the average historical valuation of the company, and significantly lower than the current overall valuation level of the pharmaceutical business; we give the company 20-23 times PE in 2019, corresponding to the target range of 34.6-39.8 yuan, maintaining a "buy" rating.
Risk reminder event: the progress of business development in out-of-town areas is not as expected, and the equipment price reduction risk is affected by industry policies.