Main points of investment

Event: the company publishes its 2017 semi-annual report

In the 2017 semi-annual report, the company achieved sales revenue of 322 million yuan, an increase of 20.33% over the same period last year; the net profit attributed to the parent company was 38.2921 million yuan, an increase of 30.15% over the same period last year; and the net profit after deduction was 307.844 billion yuan, an increase of 12.57% over the same period last year, in line with expectations.

In 2017, the company's Q2 achieved sales revenue of 165 million yuan in a single quarter, an increase of 20.48 percent over the same period last year, and the net profit attributed to the parent company was 21.1847 million yuan, an increase of 38.26 percent over the same period last year.

Second, our point of view: the rapid growth of the hemodialysis product line, driving the rapid growth of the company's performance. Driven by the hemodialysis product line, the company's sales revenue and return net profit in the 2017 semi-annual report were 322 million yuan and 38.3 million yuan respectively, an increase of 20.33% and 30.15% respectively over the same period last year. In terms of sales revenue, the company's sales revenue of the monitor product line reached 97.5783 million yuan in the first half of the year, accounting for 30.29% of the revenue; the sales revenue of the hemodialysis product line was 223 million yuan, accounting for 69.32% of the revenue. The hemodialysis product line has become the main driving force for the rapid growth of the company's performance.

1. After five years of hard work, the hemodialysis product line has finally become the main driving force for the development of the company.

In the 2017 semi-annual report, the company's hemodialysis product line achieved sales revenue of 223 million yuan, an increase of 36.83% over the same period last year, maintaining rapid growth and becoming the main source of the company's performance. At present, the company's hemodialysis business mainly includes dialysis powder, liquid and other consumables, as well as the middle reaches of hemodialysis product channels.

1) the layout of the production base of hemodialysis consumables is basically completed.

Through the acquisition of Wuhan Creedy Medical products Co., Ltd. during the reporting period, the company has established production bases in Northeast, North, East and Central China, basically covering densely populated areas. At present, the company is still actively looking for production bases in South China to achieve national layout.

2) continuous expansion of hemodialysis channels

During the reporting period, the company completed the acquisition of a minority stake in Shenbao Medical, a subsidiary, further thickening the company's performance. By the end of the reporting period, the company has three hemodialysis channels: Baorui Medical, Shenbao Medical and Shenzhen Baoyuan, covering Guizhou, Shanghai, Zhejiang, Jiangsu, Shandong, Anhui and Guangzhou respectively.

2. The monitoring product line shows negative growth, and the sales pressure is small.

In the 2017 semi-annual report, the company's monitoring product line achieved sales revenue of 97.5783 million yuan, down 6.0% from the same period last year. Guardianship products are the company's original main products, export business has been relatively large, more than 60% of the income. Due to the uncertainty of export business orders and revenue recognition, the company's guardianship product income has been in a large fluctuation. We believe that the company's guardianship product business is at a stable sales level and belongs to a low-growth cash flow business. With the gradual decline in the proportion of income, the impact on the company's performance is significantly reduced.

3. The company's gross profit margin decreased slightly, and under the effective management of expenses, the net profit margin increased slightly.

In the first half of 2017, the company's gross margin and net profit margin were 38.4% and 14.1%, respectively. As the gross profit margin of the company's hemodialysis products is only 34.46%, which is significantly lower than the 47.05% gross margin level of the monitoring products, with the gradual increase in the proportion of hemodialysis products, the company's gross profit margin level has decreased slightly.

In terms of expenses, the company has effectively controlled the growth of sales expenses and administrative expenses. Sales expenses reached 46.4216 million yuan, an increase of 30.5% over the same period last year, down from 35.2% for the whole of 2016.

The management fee was 30.0251 million yuan, an increase of 10.3% over the same period last year, down from 29.4% for the whole of 2016. It is the company's effective expense management that 2017H1 sales expense rate and management expense rate have maintained a downward trend, driving the company's semi-annual reported net profit margin by 0.9 percentage points to 14.1% net interest rate.

Although the growth rate and ratio of management expenses continue to decline, the company's investment in research and development continues to increase, mainly for dialyzers, dialyzers and other hemodialysis products, as well as monitor products R & D and upgrading. During the reporting period, R & D expenditure was 18.3965 million yuan, an increase of 42.8% over the same period last year, the fastest growth in recent years.

Third, profit forecast and investment suggestions:

We estimate that the sales revenue of the company from 2017 to 2019 is 785 million yuan, 1.03 billion yuan and 1.342 billion yuan, the net profit attributable to the parent company is 90.24 million yuan, 118.37 million yuan and 15793 yuan, and the corresponding diluted EPS is 0.62 yuan, 0.81 yuan and 1.08 yuan respectively. We believe that the company's hemodialysis industry chain layout is clear, upstream product production, mid-stream channel coverage, downstream medical services control patients, the company has huge room for development in the outbreak of the hemodialysis market. Therefore, we maintain the "overweight" rating of the company.

Fourth, risk tips:

The development of kidney disease medical service is lower than expected; the production capacity expansion of hemodialysis consumables is lower than expected; the overseas market of monitor is affected by policy, exchange rate and other factors.