Incident: The company released its 2021 semi-annual report. In 2021, H1 achieved operating income of 1,753 million yuan, an increase of 120.52% over the previous year; achieved net profit of 27 million yuan to the mother, an increase of 112.52% over the previous year; and achieved net profit of 13 million yuan after deduction, an increase of 104.99% over the previous year.

Management rules have been reorganized, and corporate governance has been optimized. Since China Life Insurance entered the company, the core team has been put in place one after another. At the project management level, a number of project management rules have been introduced and implemented, a hierarchical management mechanism for project implementation has been established, historical stock contracts have been sorted out, and targeted tracking management and assessment plans, and established “red, yellow, and green” project operation alert monitoring indicators to improve operational efficiency; at the operation management level, the company has established budget orientation and performance assessment requirements, established and optimized a multi-dimensional, differentiated performance appraisal system, and strengthened internal interaction based on the original advantages, and formulated internal integration based on the original advantages Collaboration and profit sharing solutions to Improve the efficiency of resource utilization; on the cost side, the company has also further strengthened the refined management of collection progress, scientifically grasped the balance of payments, and continuously improved operating cash flow. During the reporting period, the amount of new contracts signed by the company reached 1.36 billion yuan, an increase of 32% over the same period last year; the gross profit of the transaction increased by about 41% year on year; the amount paid during the period exceeded 1 billion yuan, an increase of about 40% over the same period last year.

The business is growing smoothly, and the indicators are gradually improving. During the reporting period, the company achieved revenue of 1,753 billion yuan, an increase of 120.52% over the previous year. Among them, the smart healthcare business achieved revenue of 780 million yuan, an increase of 88.02% over the previous year, and gross margin increased by 2.43 pct to 40.38%, benefiting from 1) Public health: As the epidemic continues, the construction of a normalized epidemic prevention and control and emergency public health emergency system, as well as the release of public health care connectivity, the company expanded new customers in Guizhou, Chongqing, Gansu, etc. on the basis of existing customers, and achieved great progress in disease control projects in many places. 2) Health insurance: The card is piloted in various provinces and collaborated with China Life to seize the national medical insurance and supplementary insurance market. As of 2021 H1, the company has covered 11 pilot cities for health insurance payment reform (30 in total), and has interacted or implemented synergies with China Life Insurance in “1+20” locations across the country.

3) Medical treatment: In the post-electronic medical record era, the hospital informatization level will not stop at level 3/4 of electronic medical records. With the implementation of the new regulations for the performance evaluation of level-III hospitals, it will continue to promote hospital investment in informatization. During the reporting period, the company achieved benchmarks for integrated information platforms in many places, such as the Shenhe People's Hospital informatization construction and the electronic medical record supporting transformation project of the Tongji University School of Stomatology, and assisted Renji University Medical College Affiliated to Shanghai Jiao Tong University School of Medicine through the standardized maturity assessment of hospital information connectivity. In addition, progress was outstanding; In smart government affairs and internet service business The company achieved operating income of 742 million yuan and 230 million yuan respectively, with year-on-year increases of 175.84% and 107.29%, while gross margins increased 13.22 pct and 11.04 pct respectively to 28.89% and 33.95%, all showing an acceleration trend.

A fixed increase plan of 3 billion yuan has been formulated, and business development is expected to advance. According to this fixed increase plan, 1,014 million yuan of the funds raised will be used for future public health and medical innovation management service projects, 890 million yuan will be used for future urban smart service platform projects, 200 million yuan will be used for enterprise human resources digital platform projects, and 896 million yuan will be used to repay bank loans. The company will use more capital to build traditional healthcare and smart city businesses, which will further consolidate the foundation for the company's performance development. Compared with the 2020 fixed increase plan, the change to the inquiry model and the fixed increase amount is larger, and will be more conducive to introducing strategic investors to achieve collaborative development at the business level.

Investment advice: The company is a leader in medical information+government informatization in China. It will fully benefit the high level of prosperity of the industry and is expected to further expand its market share. Furthermore, the implementation of the fixed increase plan will significantly enhance the company's competitiveness, and I am optimistic that the company will make great strides in the future under synergistic effects. We expect the company's revenue from 2021 to 2023 to be 4,678, 6301, and 8.204 billion yuan respectively, and net profit of 133.3, 321, and 584 million yuan respectively, maintaining the buy-A rating.

Risk warning: traditional business development falls short of expectations; repeated impact of the epidemic; new product promotion falls short of expectations; fixed growth falls short of expectations; Internet service business expansion falls short of expectations.