The company performed well. In 2018, the company achieved operating income of 17.96 billion yuan, an increase of 26.13% over the same period last year; the net profit of shareholders belonging to listed companies was 328 million yuan, an increase of 24.27% over the same period last year; and after deduction, the net profit of shareholders of listed companies was 324 million yuan, an increase of 22.72% over the same period last year, corresponding to 1.31 yuan of EPS. During the reporting period, the company maintained steady revenue growth and good performance.

The out-of-port business is developing rapidly. During the reporting period, the company's main business pharmaceutical wholesale revenue reached 17.631 billion yuan, accounting for 98.17%, and the gross profit margin increased by 0.70pp over the same period last year to 9.92%. Among them, the company's revenue in the Beijing area reached 8.086 billion yuan, an increase of 10.54% over the same period last year, and its proportion in total operating revenue dropped to 46.73%. During the reporting period, the results of the company's extension gradually appeared, with revenue of 9.567 billion yuan in other provinces, an increase of 37.86% over the same period last year, and the proportion of revenue rose to 53.27%. During the reporting period, the company continued to accelerate the development of device wholesale business and acquired two medical device companies in Fujian and Shaanxi. The good development of device wholesale business contributed to the rapid growth of the company's performance.

Affected by the two-vote system, the net operating cash flow of the company is negative. Under the influence of the two-vote system, the company uses prepayments and cash to pay upstream suppliers, while the accounts receivable period of downstream customers is extended, so that the net operating cash flow of the company is-292 million yuan. it is quite different from the growth of net profit. However, the cash flow turnover in 2018 has improved compared with-374 million yuan last year. During the reporting period, the company's gross sales margin rose to 10.23% year-on-year, but due to the increase in the three expense rates, the net sales margin was 3.18%, down 0.12pp from the same period last year. With the gradual elimination of the impact of the two-vote system, the company's operating capacity and profitability are expected to gradually improve.

Profit forecast: we predict that the net profit attributed to the parent company from 2019 to 2021 will be 410 million yuan, 512 million yuan and 630 million yuan respectively, corresponding to EPS 1.64,2.04,2.52 yuan respectively, and the current share price corresponding to PE is 10.0 shock 8.5 times, maintaining the "recommended" rating.

Risk hint: the risk of price reduction of drug and equipment consumables; the risk that the company's extension expansion does not reach the expected risk.