The company recently announced that its operating income in the first three quarters was 2.654 billion yuan, an increase of 12.98 percent over the same period last year. The net profit attributed to the parent company was 153 million yuan, down 5.30 percent from the same period last year. The net profit after deducting non-parent income was 151 million yuan, an increase of 2.95 percent over the same period last year; earnings per share was 0.30 yuan, down 5.29 percent from the same period last year.

Main points of investment:

The company's performance is in line with expectations.

The company achieved 845 million yuan in revenue in the third quarter, an increase of 8.23% over the same period last year. We believe that there are two main reasons: on the one hand, the business of commercial and medical services is growing steadily, and on the other hand, Mailuoning injection sales are beginning to stabilize. Due to the increase in the proportion of business, the company's gross profit margin was 21.20% in the third quarter, down 2.43% from the same period last year. In addition, the sales expense rate and financial expense rate also increased by 0.72% and 0.35% respectively in the third quarter, resulting in a 2.07% drop in net profit in the third quarter compared with the same period last year. However, due to the transfer of Hefei limin equity income in the same period in 2015, the non-recurring profit and loss fell sharply in the third quarter, so the return net profit fell 5.27% in the third quarter compared with the same period last year.

There is more room for the growth of medical services, and the reform of state-owned enterprises is worth looking forward to.

The basic hardware investment of Suqian Hospital has been completed, mainly in software and expert resources, while Yizheng Hospital and Anqing Hospital are still in the stage of hardware investment. With the continuous improvement of the level of software and hardware, the profit level is expected to improve. In addition, with the frequent implementation of the reform policy of state-owned enterprises and the active implementation of local governments, most pharmaceutical state-owned enterprises have been carried out, and the slow progress of the company is mainly related to the impending change of leadership. We believe that new developments are expected in the next two years.

Maintain the "cautious recommendation" rating.

The company's EPS in 16-18 is expected to be 0.41,0.44 and 0.47 yuan respectively. Taking into account the good development prospects of medical services and the expectation of business improvement, we maintain the "cautious recommendation" rating.

Risk hint.

A rapid decline in gross profit margin; a further increase in costs, etc.