Main viewpoints

1. The overall performance grew steadily, and the structural changes of the itemized business should be paid attention to. According to the 2016 annual report, the company's service business was 620 million yuan, up 27.7% from the same period last year, and the reagent business revenue was 730 million yuan, up 36.5% from the same period last year. Income from instruments and equipment totaled 210 million yuan, down 43.8 percent from the same period last year.

The company's service business and diagnostic reagent business continue to maintain the trend of high income growth. The company's service business section is mainly independent medical laboratory business, its largest laboratory Guangzhou temporary inspection center achieved business income of 365 million yuan during the reporting period, an increase of 30% over the same period last year. The revenue of Hangzhou Dean, the largest single laboratory of Dean Diagnostics, is estimated to be between 3.8 and 400 million yuan in 2016. Jinyu testing has not yet updated its prospectus, but only announced the net profit of Guangzhou Jinyu Laboratory in the full fiscal year of 2014. we estimate that its income is about 500 million yuan. Therefore, because the Guangzhou temporary inspection center is one of the larger laboratories in China, the growth rate of 30% should also be the overall growth level of the domestic ICL industry.

The company's diagnostic reagent business benefited from the increase in the volume of high-throughput sequencing reagents, achieving a growth rate of more than 36%. The sales volume of the kit disclosed by the company was basically the same as last year, but the volume of NIPT-related reagents began to release, and the business revenue grew rapidly because the price was much higher than that of traditional clinical molecular diagnostic reagents.

We think that as the whole industry chain company of IVD industry and the leader of gene diagnosis industry, the adjustment of its business structure indicates the change of wind direction in the industry in the future, and the terminal service based on laboratory platform continues to maintain a high growth rate, while in the field of upstream reagents, the company is one of the few domestic companies that have obtained NIPT product certificates. The growth of NIPT reagents also illustrates the high-profile state of the high-throughput sequencing service industry.

two。 Changes in Channel and Terminal Services

In 2016, one of the noteworthy changes in Da'anji 's financial results was the decline in sales of equipment and equipment, which we believe for two reasons:

First, the change of the business caliber of the company. The company's instruments and equipment are mainly molecular diagnostic equipment of foreign brands, and a small part of the company's own equipment. At present, the company's instrument sales business is done under Guangzhou Quantong Medical Co., Ltd., which participates in 35.7% of the shares, so the instrument sales business has declined in the company's consolidated statements.

Second, the development and change of business model. Based on the business segment and product capacity of independent medical laboratories, the company carries out businesses such as joint laboratories and regional inspection centers, and provides hardware equipment support to cooperative medical institutions, which belong to more medical services. So the simple sales business has declined.

3. Individual diagnosis and treatment and high-throughput sequencing to maintain high scene demeanor

Clinical individualized diagnosis based on molecular diagnosis has a broad development prospect, such as individualized drugs for oncology and cardiovascular diseases. According to the IPO application data of Eddard Biological Update, a professional company in this field, the company's products such as EGFR and KRAS continue to grow at a high level. This field is also the focus of Daan gene molecular diagnosis products, but the income base of Daanji reagent is higher and the elasticity is less.

The application of high-throughput sequencing technology in the field of NIPT is growing rapidly. With the promotion of BGI and Berry and Kang's listing process, and the policy to gradually bring the NIPT project into the management system similar to conventional molecular diagnostic testing, the market in this field will be further expanded and the competition will be more fierce in the future. Due to the disclosure of the 2016 annual report, the company's top five customers and suppliers have changed accordingly. For example, Jinyu testing has become the largest customer of Daan Gene, and LIFE continues to be the company's largest supplier, but the company's purchases from LIFE reached 116 million yuan, accounting for 17%, while the company's purchases from life in 2015 were only 44.25 million yuan, accounting for 6%. These changes are related to the volume sales of the company's NIPT-related products.

4. Continuously high R & D investment and raising industry barriers

During the reporting period, the company invested 150 million yuan in R & D, an increase of 33% over the same period last year; the ratio of R & D investment was 9.38%, an increase of 1.67% over the same period last year. The R & D investment ratio of Daan gene has always been at a high level. With the strict management of clinical verification in China, the cost of clinical trials, declaration and registration of medical devices has increased significantly, especially the cost of three types of medical devices, which is estimated to be at the level of one million yuan. The company has the most comprehensive clinical molecular diagnostic product line in China, while its subsidiaries Dari Biology and Zhongshan Biology are actively positioned in the field of immunodiagnosis. in 2016, the company obtained 9 new product certificates, all of which are three types of medical devices. The current regulatory policy has greatly increased the cost of new product declaration, so for companies with small scale and not yet full product line, there will be greater pressure on R & D investment such as product registration declaration in the future. this is obviously beneficial to the leading listed companies with various financing channels and large scale.

5. The advantage of industrial chain will become more and more prominent.

The channel reform is affecting the competition pattern and business model in the middle and lower reaches of the IVD industry chain. The listing of large channel merchants (distributors) is accelerating the integration of the circulation field. The promotion of the two-vote system is the catalyst for the reform of medical device circulation. Daan Gene is a rare whole industry chain company in the industry, with a strong direct sales network, which can not only minimize the impact of policy changes in the field of circulation on the company, but also become an important advantage for the company to develop new business models (GPO, regional inspection center, etc.). So we think the advantage of the whole industry chain of the company will be more prominent in the future.

6. Subsidiary business platform continues to introduce social capital to bring new vitality company announcement, high-tech Da'an Health will carry out joint-stock reform and will be listed on the new third board. The company through the high-tech Daan holding under the independent medical laboratory. The revenue of high-tech Daan consolidated report in 2016 was 539 million yuan, an increase of 21% over the same period last year. The net profit in 2016 was 235000 yuan, making a small profit as a whole. Daan Gene is one of the largest chain laboratories in China, second only to Jinyu, Dean and Adikon. The company holds less than 50% of high-tech Daan, with the exception of Guangzhou temporary Inspection Center, other laboratories are in a state of loss, and the business sector hovers up and down the break-even line all the year round. We believe that by logging into the new third board and introducing more social capital, the management level and profitability of the business will be improved.

At present, a number of subsidiaries of Daan Gene are listed on the new third board, and achieve asset securitization through a variety of ways. Among them, Dari Bio, which has a large performance and profit volume, is listed on the new third board. It used to cultivate eugenic and eugenic products based on time-resolved fluorescence, and is now the main implementation platform of the company's NIPT products, with year-on-year growth of revenue and net profit of 59.6% and 57.0%, respectively. Da Anji transferred the shares of Anbiping, a joint-stock company, to Jinyu car City, which acquired a total of 4.98% of Ambiping's shares held by Daan Gene by issuing shares and paying cash, and the matter is currently under way.

7. Profit Forecast and Investment rating

We expect the net profit of the parent company from 2017 to 2019 to be 121 million yuan, 148 million yuan and 179 million yuan respectively, with year-on-year growth rates of 13.7%, 22.2% and 20.5% respectively.

As the leading company in the domestic genetic diagnosis industry, the company is also the company that has been established and listed for the longest time. In the future, it will be the main beneficiary of the molecular diagnosis industry, high-throughput sequencing industry and the integration of channels and terminals. The company is a rare whole industry chain layout company in the industry, so the flexibility of individual business is not big, and the future performance grows steadily. We believe that after about a year and a half of adjustment, the expected overdraft of the market for the value of accurate medical investment has been basically digested and has allocation value. At present, the valuation premium rate is high, and we maintain the "recommended" investment rating.

8. Risk hint

New product research and development and listing risk; new business sector expansion risk.