Main points of investment:

In the first half of 2017, income increased by 13.08%, and net profit increased by 6.54%. In the first half of 2017, the company achieved an income of 1.952 billion yuan, an increase of 13.08%, a net profit of 184 million yuan, an increase of 6.54%, and a deduction of 171 million yuan for non-net profit, a decrease of 3.36% EPS0.232 yuan, slightly lower than expected. In the second quarter, the single-quarter income was 1.021 billion yuan, up 3.19%; the net profit was 82.87 million yuan, down 7.89%; and the non-net profit was 77.77 million yuan, down 1.8%, slightly lower than expected, mainly affected by the price reduction of Aidi injection (accounting for more than 30%). Affect the overall performance of anti-tumor drugs.

The price reduction growth rate of Eddie, the core product of the pharmaceutical industry plate, has declined, the growth rate of Lobatin sales has greatly exceeded expectations, and the product structure has been continuously optimized. The company's pharmaceutical industry sector grew steadily in the first half of 2017, with core antineoplastic drug income of 936 million (- 0.99%), cardiovascular and cerebrovascular drug income of 238 million (+ 12.19%), accounting for 12%, and gynecological drug income of 179 million (+ 37.96%). The proportion increased from 8% to 9%. The revenue of OTC products is 76.13 million yuan (- 32.1%), accounting for 4%. The OTC plate is still in a recovery period, and the completion of annual tasks in the first half of the year is close to 50%. It is expected that the share of revenue will gradually decrease in the future. Aidi injection, the core variety of antineoplastic drugs, was affected by the overall policy of traditional Chinese medicine injection. in the first half of the year, Aidi injection, the core variety of antineoplastic drugs, won the bid at a low price of 21.85 yuan per unit in the provinces that won the bid in the first half of the year, and the average winning price dropped by about 11% compared with the same period last year. Although the sales volume basically maintained single-digit growth, the overall income growth rate of Aidi declined in the first half of 17 years, while the cost of Aidi's main raw materials, such as ginseng, increased in the first half of the year. Which in turn affects the growth rate of the profit side. Eddie has completed most of the bidding work in the first half of the year, and the impact of price reduction is gradually weakening. It is expected that there will be an excessive increase in overall income in the second half of the year. The winning price of Lobatin remained basically stable in the first half of the year, with revenue and profit growth of more than 100%. It is estimated that the annual sales volume is expected to exceed 700 million, accelerating the growth into more than 1 billion of large varieties. At the same time, the company's cardio-cerebrovascular and gynecological drugs grew faster than expected in the first half of the year, and the income share of second-tier products continues to rise, which is expected to lead to the optimization and adjustment of the product structure of the overall pharmaceutical sector. The pharmaceutical industry sector will grow rapidly in the future, driven by new core varieties, and the revenue growth of the pharmaceutical industry sector is expected to exceed 10% in 2017.

Medical services are growing rapidly as a whole, creating the largest oncologist / medical group. The company has actively laid out the field of oncology medical services and established the first oncologist / medical group in share A. So far, the company has laid out 6 tumor hospitals (Guannan, Chaoyang, Bijie, Binhai, Fulin, Liaoning Zhongao), with 1380 beds, 27 tumor centers, 7 doctor groups, and set up a 3 billion tumor industry fund. In the first half of 17 years, the income from medical services was 359 million yuan (+ 93.22%), which increased rapidly from 13% at the end of 16 years to 18.4%, slightly exceeding expectations. The comprehensive net interest rate is expected to reach 15%, and the net profit contributed for the whole year of 17 years is expected to reach 100 million yuan.

During the first half of 2017, the expense rate decreased significantly, and the gross profit margin decreased slightly due to the impact of medical services. The gross profit margin in the first half of 2017 was 73.47%, down 6.2 percentage points, which was mainly affected by the increase in the proportion of medical service business; the expenditure rate during the period was 60.38%, down 4.09 percentage points, of which the sales expense rate was 50.46%, down 3.72 percentage points, and the effect of fee control over the past 17 years became more remarkable; the management expense rate was 8.15%, down 0.47 percentage points The rate of financial expenses was 1.78%, an increase of 0.11 percentage points. The operating cash flow per share was 0.35 yuan, an increase of 73.43%, mainly due to the addition of Ruike, Huajian and Chaoyang hospitals during the reporting period, and the recovery of security funds when the bill was due, resulting in a good trend in overall operating conditions.

Focus on the core drugs, build the tumor treatment ecosystem, and maintain the overhang rating. The company "focuses on large tumors", the pharmaceutical industry is growing steadily, and at the same time, it is expected to finally realize the industrial chain combination of "oncology drugs + oncology medical services" and enlarge the tumor treatment ecosphere. There is great potential for future development. Under the influence of Eddie's price reduction and the closure of the radiotherapy center of the two military hospitals in Shanghai Hongfei, and only considering the endogenous development of medical services, we slightly lowered the EPS of RMB 0.62,0.78,0.98 to 0.58,0.72,0.84 yuan in 17-19, an increase of 19%, 25% and 17%, respectively, with a price-earnings ratio of 24 times, 20 times and 17 times respectively.