Performance summary: 2015H1 achieved an annual operating income of 1.57 billion yuan, an increase of 13.5% over the same period last year, and a net profit of 120 million yuan, an increase of 5.9% over the same period last year. In a single quarter, 2015Q2 achieved an operating income of 850 million yuan, an increase of 14.7% over the same period last year, and a net profit of 58.68 million yuan, a decrease of 14.4% over the same period last year.

The performance growth mainly comes from the expansion of the revenue scale and the decline of the expense rate during the period. 1) in terms of revenue scale, the company's 2015H1 operating income increased by 13.5% compared with the same period last year, which was mainly due to the consolidation of the new Anqing Petrochemical Hospital, resulting in a growth rate of 41.1% in medical services and 10.2% in the pharmaceutical sector, which was in line with the growth rate of the industry. (2) in terms of profitability, the company's 2015H1 gross profit margin decreased by 1.6% compared with the same period last year, mainly due to the 2.9% decline in the gross profit margin of the pharmaceutical sector, which currently accounts for a large proportion of income under the influence of bidding and price reduction. However, with the completion of the integration of Yizheng Hospital and the orderly restructuring of Anqing Hospital, the company's profitability in the field of medical services has increased, and the gross profit margin has increased by about 3.9% compared with the same period last year. With the rapid growth of Yizheng Hospital and the consolidation of Anqing Petrochemical Hospital, the scale effect has been gradually reflected, and the overall expenditure rate of the company has decreased by 1.7% compared with the same period last year. 3) if the growth rate of the company's 2015Q2 operating revenue is the same as that of the 2015H1, but the overall gross profit margin decreases more sharply (- 4.1%), we believe that the company's overall profitability is expected to improve in the future with the increase in the proportion of medical services revenue.

The replication effect of "Suqian model" is beginning to show, and the rapid growth in the field of medical services is expected. At present, the company has copied the "Suqian model" in Yizheng Hospital and Anqing Hospital. According to the development path of Suqian Hospital, we think that the growth momentum of the three hospitals is sufficient: 1) Suqian Hospital has entered a period of steady growth, with 2015H1 income increasing by 11% and net interest rate stable at about 13%. At present, the bed utilization rate remains above 100%, and the future growth point will be bed expansion and turnover rate improvement. 2) at present, the integration of Yizheng Hospital has been basically completed, and the income of 2015H1 has increased by 28.4%. Affected by depreciation and amortization after M & A, the net interest rate is still relatively low at 5%. Compared with Suqian Hospital, there is still much room for improvement. Under the combined effect of high income growth and the gradual weakening of the impact of depreciation and amortization, we think that Yizheng Hospital has entered a stage of rapid growth. 3) Anqing Hospital merged in 2014 and is still in the period of integration. It is expected that 2016 will follow the pace of Yizheng Hospital into a period of rapid growth.

The growth rate of the pharmaceutical sector will continue to be under pressure, price maintenance or an effective means to maintain long-term vitality. Under the trend of controlling medical insurance fees and bidding to reduce prices, the company's pharmaceutical business is under some pressure, and the growth rate of 2015H1 is about 10%, which is in line with the overall growth rate of the pharmaceutical industry. The core product Mailuoning is a traditional Chinese medicine injection, which is under great pressure from medical insurance control fees, and we estimate that its sales volume in 2015 is on a downward trend compared with the same period last year. Since entering the new round of bidding, the company has launched the price maintenance strategy for the core products. We believe that under the bidding mode of price linkage, it is an effective means to maintain the price, maintain the profit margin or maintain the lasting vitality of the company's pharmaceutical sector.

Profit forecast and rating: from 2015 to 2017, the company's EPS is expected to be 0.43,0.50,0.60 yuan respectively, and the corresponding dynamic PE is 38 times, 33 times and 27 times respectively. We believe that the company has established a stable cooperative relationship with Gulou Hospital, and the growth momentum of its three hospitals is sufficient, and it is expected that in the later stage, the layout of the medical service sector will still be expanded through extension expansion. The continuous improvement of the performance share of the medical services sector is expected to pull up the overall valuation level and maintain the "overweight" rating.

Risk hint: the risk that the price reduction of drug bidding is higher than expected and the extension expansion speed is too slow.