Matter The company published its 2015 mid-year report. During the reporting period, the company achieved operating income of 627 million yuan, an increase of 27.9%; operating profit of 56.61 million yuan, a year-on-year decrease of 18.6%; total profit of 72.23 million yuan, a year-on-year decrease of 8.0%; and the parent company's net profit of 60.27 million yuan, an increase of 0.15% year on year. Net profit after deducting non-recurring profit and loss was 48.71 million yuan, an increase of 18.5% over the previous year. Basic earnings per share were $0.09. Revenue for the single quarter increased 25.8% year on year; net profit remained flat; net profit for a single quarter was 32.3 million yuan after deducting non-recurring profit and loss, up 3.2% year on year. The company recently announced that its wholly-owned subsidiary signed a cooperation framework agreement with the People's Government of Enyang District of Bazhong City to invest a total of 300 million yuan to establish a hospital project management company. Daan Gene Subsidiary's shareholding ratio is not less than 51%. Key takeaways 1. Highlight the importance and significance of revenue growth. According to the company's express report, fluctuations in the benefits of transferring shares in subsidiaries, as well as share incentive amortization expenses, are the main factors affecting the company's performance. The company's main sources of revenue are clinical genetic diagnostic products and independent medical laboratories. In terms of products, in addition to traditional RT-PCR for virus typing and quantitative testing, we have noticed that in recent years, the company has actively applied for products for individualized drug use in clinical tumor treatment and cardiovascular fields, such as EGFR and HER-2 gene mutation detection reagents, and products such as VKORC1 and CYP2C9. We believe that the clinical genetic diagnosis market to guide individualized drug use is a huge market with important commercial value and clinical significance in the entire genetic diagnosis industry. One of the main driving factors in this market in the future is the development of clinical medicine and treatment technology, such as the development of individualized treatment methods such as monoclonal antibodies, small molecule targeted drugs, and cell therapy technology. We note that the company's independent laboratory business has maintained a high revenue growth trend in recent years. According to the company's interim report, the company's independent laboratory business achieved revenue of 175 million yuan in the first half of the year, an increase of 24.5% over the previous year, and still maintained a high growth trend. The company currently has 8 independent medical laboratories (holding and participating in shares). The Guangzhou Clinical Inspection Center has the largest revenue scale, and the net profit margin level is around 10%. Other laboratories have failed to make a profit, and the company's business as a whole has yet to be profitable. Regarding the independent medical laboratory business, we believe there are two directions with a lot of room for development in the future. One is the primary market and the other is the special inspection market. As for the grassroots market, this is a huge and fragmented market. Different companies have different ways to achieve commercial benefits in this market, and their advantages are also different. The advantages of Dian Diagnosis are management and service. Daan Gene's advantage lies in the industrial chain and direct sales system that has always been specialized. For the special inspection market, this is a huge incremental market to be developed. Our so-called special testing market refers to testing items with important clinical significance that are gradually being developed along with the development of clinical treatment technology. These projects are constrained by policy reasons or other reasons, and it may be difficult to achieve normal commercialization at present, but this major trend exists objectively. It's as if after NIPT technology gradually emerged clinically, policies were introduced to regulate it. Daan Gene has very obvious advantages in the industrial chain and technology platform in this field. Therefore, we believe that the layout of genetic diagnosis is a forward-looking layout in the pharmaceutical industry, or in vitro diagnostic industry in China. As a leading company in this strategically important industry, the increase in revenue is more significant than the significance of profit growth. 2. The value of the industrial chain will become more prominent. Daan Gene is one of the few IVD companies with a complete industrial chain layout in China. Although the overall industrial chain layout is not conducive to the company's short-term performance explosion, it is of great significance to the company's long-term development. This is related to the overall market environment of the domestic IVD industry. Looking at the domestic IVD market, domestic and foreign companies in the field of biochemical diagnosis are evenly rivaled; the chemiluminescence market has a long way to go; the field of genetic diagnosis is also a balanced trend in a sense (clinical nucleic acid diagnostic instruments and equipment are imported, PCR reagents are a few leading domestic companies, basically all instruments and equipment in the field of high-throughput sequencing are imported, making money for domestic application); private capital has just begun to enter the medical service industry in a big way. Therefore, compared with mature markets in developed countries, the domestic IVD industry environment is very different. Roche and Abbott in the US are the world's leading integrated pharmacy companies, but we have not seen their layout in the downstream independent laboratory industry; Roche has only invested in Fundation Medicine, a service application provider in the field of high-throughput sequencing. However, whether it is domestic industrial investment or secondary market investment, the entire industrial chain layout can effectively reduce the risk that a company will encounter bottlenecks and limit its development. Although this layout sacrifices the explosive power of short-term performance, it is clearly beneficial to the company's long-term steady development. 3. Horizontal extension of the technology platform. Daan Gene is a domestic professional genetic diagnosis technology and product developer, but it has also maintained a close tracking trend in terms of the horizontal layout of technology platforms and product lines, and is quite prominent in some fields. For example, in the immunodiagnostic industry, the time-resolved fluorescence of Dari Biotech, a holding subsidiary of the company, is quite characteristic. The application of its products is mainly focused on producing new screens, tumors, myocardial markers, etc., and is actively laying out the field of chemiluminescence. The company's chemiluminescence products based on the acridine ester principle have obtained several product certificates. Although there is a clear gap between this and domestic first-line and second-line chemiluminescence suppliers, the layout of these technology platforms has enabled Daan Gene to maintain close tracking of advanced directions in the field of IVD. The application and iteration of new technologies in the IVD industry is rapid. These new technologies may stimulate new fields of application, leading to the emergence of new markets. The average R&D investment ratio of enterprises in the IVD industry is high, with an average of 8-10%. Daan Gene has always been higher than the industry average, which is very necessary. 4. Follow the development trend of the company's startup platform. Beginning with the 2014 annual report, we are concerned that the company has begun to propose a marketing platform to promote construction, development, cooperation and win-win, and open up the company's sales, service, R&D, approval and capital platforms, so that listed companies can become entrepreneurial platforms. Therefore, we have noticed obvious changes in Daan Gene's shareholding and holding company projects, and the number has increased significantly. Among them, we also noticed that Dari Biotech, a holding subsidiary of the Communist Company, has already been listed on the New Third Board. At the same time, Jianbaishi, which is a shareholder of the company, also announced its plans to list on the New Third Board. Therefore, we believe that one of the main investment highlights of the company in the future is the development of its participating holding subsidiaries. Furthermore, the company announced a few days ago that its subsidiary signed a cooperation framework agreement with the People's Government of Enyang District of Bazhong City to invest a total of 300 million yuan to establish a hospital project management company, and the shareholding ratio of Daan Gene Subsidiary is not less than 51%. The hospital investment sector is an important business segment for the company in the future. This time, the company has taken the first step in investing in hospitals, and future progress is worth watching. 5. Plans for a private sale were suspended, and the company's development entered a new stage. We have noticed that in the 2014 annual report, there have been several new developments, which are very worthy of attention. For example, as a startup platform for listed companies, the number of companies participating in the company is constantly increasing, and the company's asset size rose sharply in the first half of this year. At the same time, company executives or affiliated companies participated in capital increases for listed companies' subsidiaries, such as Darryl Biotech and Tiancheng Healthcare. Combined with the company's previous initial equity incentives, we can see the subtle changes that the company is undergoing. Since Daan Gene entered the capital market, it has been rewarded to shareholders through continuous share transfers. This is the first time that the suspended company has planned a non-public offering. However, judging from the current development of the industry and the company, especially in the context of rapid development in the field of high-throughput sequencing technology and the growing popularity of precision medicine, we have noticed that many companies in this field (listed companies and unlisted companies) are raising capital through various forms to seize future development opportunities in this huge market. So we speculate that the company will be left nowhere else. As; in addition, the layout of the medical services sector, as well as the maintenance and maintenance of the leading edge of existing technology platforms, all require capital support. As a leader in the industry, Daan Gene's advantage in financing as a listed company will be an important guarantee for maintaining its leading position in the industry. Profit forecast and investment rating: Based on the company's current total share capital, we expect the company's EPS for 2015-2017 to be 0.26 yuan, 0.33 yuan, and 0.40 yuan, respectively. The PE corresponding to the current suspended stock price of the company is 162 times, 134 times, and 110 times, respectively. We are optimistic about the genetic diagnosis industry. This is one of the most promising segments in the pharmaceutical industry and in the IVD field. Combined with our judgment on the pharmaceutical industry's investment strategy for the second half of the year, we believe that the fields representing the future clinical development direction of the pharmaceutical industry will continue to enjoy high valuations and receive excessive returns. We are optimistic about the long-term investment value of Daan Gene and maintain the company's “highly recommended” investment rating. Risk tips 1. Product development and marketing risks.