I. event: the company released its 2016 annual report and dividend plan

In 2016, the company achieved operating income of 313 million yuan, an increase of 38.30% over the same period last year; the net profit belonging to the owners of listed companies was 65.3711 million yuan, up 3.16% from the same period last year; and the net profit belonging to shareholders of listed companies excluding non-recurring profits and losses was 49.0132 million yuan, down 8.15% from the same period last year. In 2016, the company promised to expand its business to ophthalmology through asset restructuring on the premise of the competitive advantage of the materials sector. In 2016, the company increased financial expenses due to the increase of bank loans due to epitaxial mergers and acquisitions, and increased expenses for subsidiary products in research and development or new product promotion and listing, which eventually led to a decline in net profit after deducting non-recurring gains and losses. However, its capital investment is the growth point of future performance, and the future performance is worth looking forward to.

Second, our views:

1. The market share of the company's star products is the first, the products of M & An enterprises are of high quality, and the development is expected to be accelerated in the future.

The biological dura mater patch is the company's star product, accounting for 57.5% of its revenue in 2016. Since the launch of the product, sales have been rising steadily, with a compound growth rate of 6% from 2012 to 2016, reaching 173 million in 2016. This product has excellent performance, quickly occupies the domestic dural patch market, has surpassed Johnson & Johnson, Beilang and other imported products, and currently has the first domestic market share. We expect the biological dura mater patch to maintain steady growth in the future.

The company acquired Zhuhai Xiangle Pharmaceutical Co., Ltd. in 2016. Zhuhai Xiangle made a performance commitment that its net profit after deducting non-recurring profit and loss in 2015, 2016 and 2017 reached 40 million, 52 million and 67.6 million respectively. Zhuhai Xiangle fulfilled its net profit commitment in 2015 and 2016, with an average realization rate of 100.42%. With the advantage of channels, it is expected to continue to grow steadily in the future.

The company has the exclusive agency of American Arui IOL in China, and has opened up a more perfect sales channel in the field of ophthalmology through the sales of IOL in China. The company has about 150 dealers in China, and its sales network covers 30 provinces, 50 cities and more than 1400 hospitals. Zhuhai Xiangle has maintained a good cooperative relationship with second-and third-tier city hospitals. Sales take the mode of obtaining hospital authorization first, and then dealers enter the hospital for sales, in order to maximize the hospital share. Through the sales channel of Zhuhai Xiangle ophthalmology products, the future sales of Guanhao biological new product artificial cornea will have greater protection.

In October 2016, the company announced plans to buy Whitdison for $1.801 billion. Whedison will add Loxef sodium for injection to the company. The product is a highly effective antibiotic with very low risk of drug resistance, suitable for infections caused by sensitive bacteria, with significant therapeutic effect and high safety, few adverse reactions and no hepatorenal toxicity. The market has a broad prospect, entering the national basic medical insurance and industrial injury insurance, which will bring new growth points for the company in the future.

Whitdison sales channels cover the country, more than 100 agents. The company's strong marketing ability in drugs will play an active role in the promotion of antibiotic products and new drug products on the market in the future.

2. Youdeqing artificial cornea-the gospel of blind patients

Youdeqing acellular membrane graft is a product that the company recently obtained a registration license and began to sell on the market.

The product is a biological artificial cornea with good biological activity and biocompatibility and low immunogenicity. It is the only product in the market that takes blindness and fuming as the treatment standard. By December 2016, the company had carried out 40 keratoplasty operations for the product in 12 provinces, including Guangdong and Fujian. No adverse events occurred, the blindness rate was higher than the original plan, and the postoperative vision recovery effect was significant. In one patient, the uncorrected visual acuity was 0.4, the keyhole visual acuity was about 0.6, and the cornea was completely transparent 5 months after the operation.

At present, the company has completed the training of about 100 doctors, and the company will continue to carry out this work in 2017 and open up 100-200 hospitals that can perform operations. We estimate that through the sales channel of Zhuhai Xiangle, Guanhao Bio can further improve its profitability while expanding its business scope.

3. it is proposed to carry out the second phase of the employee stock ownership plan to further mobilize the enthusiasm of the employees. The company intends to implement the employee stock ownership plan, which is held by the directors, surveillance and senior managers of the company. There are no more than 80 middle managers, core businesses and business backbones of the company and its wholly-owned or holding subsidiaries.

The total amount of the employee stock ownership plan shall not exceed 100 million shares and no more than 10% of the total share capital of the company. Through the employee stock ownership plan, the enthusiasm of employees can be fully mobilized, the company's ownership structure can be enriched, and the company's management and incentive policies will be further improved.

Third, profit forecast and investment suggestions

We expect the company's operating income from 2017 to 2019 to be 522 million yuan, 654 million yuan and 805 million yuan, and the net profit attributable to the parent company to be 130 million yuan, 159 million yuan and 189 million yuan. The corresponding diluted EPS is 0.49,0.60,0.71 yuan respectively. We think that the existing products of the company are excellent, the bright spots of the new products are outstanding, and the management of the company has improved steadily. So we covered it for the first time, giving it a "buy" rating.

IV. Risk hints

The market risk, market competition risk and technology leakage risk brought by the industrialization rate of original technology.