Events:

Due to the announcement of the semi-annual report for 2020, Daanji announced that in the first half of 2020, the company achieved a year-on-year increase of 313.63% in operating income of 2.133 billion yuan, a year-on-year increase of 1186.48% on net profit of 778 million yuan, and a year-on-year increase of 1338.32% on non-return net profit of 765 million yuan.

Main points of investment:

Benefiting from the COVID-19 epidemic, the revenue of Daan kits and instruments increased significantly in the first half of the year. In terms of detection kits, Da'an ploughed the research and development of detection kits for infectious diseases. COVID-19 quickly developed novel coronavirus (2019-nCoV) nucleic acid detection kit (fluorescent PCR method) after the outbreak of the epidemic, which was approved and listed on January 28, becoming one of the first seven enterprises to enter the rapid examination and approval channel of the State Drug Administration. In the first half of the year, the company's income of 2.133 billion yuan increased by 313.63% over the same period last year, and the gross profit margin increased by 67.41%; of which the reagent income of 1.76 billion yuan increased by 394.47%, the gross profit margin increased by 20.13% over the same period last year, and COVID-19 's kit income of 1.326 billion yuan increased by 85.39%. The net profit of 778 million yuan increased by 1,186.48% over the same period last year. In terms of instruments, the company has self-developed fluorescence quantitative PCR instrument, nucleic acid extraction instrument and molecular hybridization instrument, as well as imported fluorescence quantitative PCR instrument and nucleic acid extraction instrument to meet the needs of different application scenarios.

COVID-19 's epidemic situation is still in the second half of the year, the demand for testing kits is still there, and it is optimistic that Daan's performance will continue to develop in the second half of the year. COVID-19 's epidemic is still spreading overseas and it is still difficult to end for a short time. Overseas business may become a new flexible growth point in the second half of the year. Daan COVID-19 's test kit was certified by CE on February 5 and was included in the emergency use list by WHO on May 14. It has been sold in more than 140 countries and regions around the world. In the first half of the year, the company's products are mainly sold in the domestic market. With the expansion of overseas markets, we see the overseas sales volume of Daan kits in the second half of the year. COVID-19 expanded the scope of testing from people to things, and the domestic testing demand only increased in the second half of the year: on July 30, the State Council stipulated that the key large-scale bazaars should be monitored once a week, and the rest of the markets that need to be monitored should be monitored according to the frequency of once a month. At present, there are 18000 farmers' markets in China, and there are more than 400,000 inspections in farmers' markets in the second half of the year. In addition, autumn and winter is the influenza season, COVID-19 and flu symptoms are similar in order to prevent COVID-19 another large area of infection detection and screening is essential. At present, COVID-19 nucleic acid test is the gold standard, COVID-19 test kit is still needed. Daan is the only enterprise in the country that has won all the bids in centralized procurement in various provinces in China, and we are optimistic that its performance will continue to grow during the post-epidemic screening period in China.

The reform of listed companies in colleges and universities is expected to land at the end of the year, and the development of Da'an will meet the inflection point. Colleges and universities do not have the strategic goal of performance growth for their enterprises, and do not bring the driving force for the long-term development of enterprises, so the operating performance of listed companies in colleges and universities is not ideal. Sun Yat-sen University, the largest shareholder of Daan Gene, transferred 100% of its shares to Guangzhou Financial holding Group free of charge, and the actual controller changed from the school to the Guangzhou Municipal people's Government. Government assets have the strategic goal of stable growth of enterprise assets for a long time. The equity conversion will be completed by the end of the year. We are optimistic that Daan will activate the vitality of the internal development of the enterprise in the form of improving the incentive mechanism after the change of controlling shareholders. Moreover, with the income and brand advantages accumulated by COVID-19 's epidemic situation, the development of the main business has been further accelerated.

Profit forecast and investment rating: as one of the representative enterprises of nucleic acid integrated testing, we are optimistic that the company will continue to make efforts in the post-epidemic era. The company's EPS from 2020 to 2022 is expected to be 1.43,0.88 and 0.99, and the PE of the previous share price is 27.03,44.10 and 39.10, maintaining the buy rating.

Risk hints: policy change risk; molecular diagnosis upstream raw material fluctuation risk; COVID-19 epidemic situation towards uncertain risk.