Main points of investment

Items:

The company released its semi-annual report for 2017, with revenue of 1.016 billion yuan, an increase of 19.46% over the same period last year, a net profit of 95.3 million yuan, an increase of 14.52% over the same period last year, and a net profit of 92.07 million yuan, up 9.79% over the same period last year.

Q2 achieved revenue of 418 million yuan per quarter, an increase of 21.45% over the same period last year; net profit of 42.18 million yuan, an increase of 16.62% over the same period last year; and net profit of 40.69 million yuan, an increase of 13.56% over the same period last year.

The company's performance is in line with expectations.

Peace viewpoint:

The company's performance came out of the trough and returned to steady growth: in 2016, the company's performance fell short of expectations due to delays in construction projects and a sharp increase in accounts receivable. In the first half of 2017, the company achieved revenue of 1.016 billion yuan, an increase of 19.46% over the same period last year, and its net profit was 95.3 million yuan, an increase of 14.52% over the same period last year. Compared with the revenue and net profit growth rate of 18.27% and 12.90% in the first quarter, the company's performance growth rate is gradually picking up. In terms of products, the revenue from medical equipment sales reached 102 million yuan, an increase of 146.51 percent over the same period last year; revenue from design services reached 12.86 million yuan, an increase of 359.94 percent over the same period last year; and revenue from construction projects reached 290 million yuan, an increase of 330.72 percent over the same period last year. Medical consumables sales and construction project revenue account for 39% and 31% of the total revenue respectively. In the future, the company is expected to achieve stable and rapid development by relying on engineering construction income, medical equipment and consumables sales.

Large orders for medical construction continue, PPP and buyer's credit help: the company frequently obtains large orders for medical construction, such as Lanzhou New District public health service platform construction project, Shangqiu public health service platform construction project and overall relocation financing project of traditional Chinese Medicine Hospital in Linwei District, Weinan City, winning bid amounts of 2.5 billion yuan, 3 billion yuan and 650 million yuan, respectively. By June 30, 2017, the company had orders-on-hand of 6.437 billion yuan. Since 2016, the amount of medical construction projects including agreements, winning bids and contracts has reached about 11.3 billion yuan, which has greatly supported the company's future performance growth. At the same time, the company actively continues to expand medical service resources through PPP and buyer credit, and uses a small amount of funds to drive large-scale medical construction projects, laying the foundation for the follow-up provision of products and services.

Actively expand the industrial chain and build a medical service platform: through a large number of medical construction projects, the company has built an industry-wide chain covering hospital construction engineering, medical professional engineering, medical software development, medical equipment sales, medical consumables sales, hospital logistics trusteeship, hospital construction and investment. At the same time, we have actively carried out extension mergers and acquisitions, successively acquiring 66.21% of Jinzhou Medical equipment, 100% of Poulder's equity, and 52% of Kangyuan's shares in Taiwan, constantly enriching the product line. The company invested 200 million yuan and 287 million yuan respectively to set up Shangrong Gaoying Medical Industry M & A Fund and Shangrong Ping an Medical M & A Fund, aiming to speed up the integration of medical industry resources. We are optimistic about the cooperation between the various businesses of the company, and the company's medical service platform has been initially completed.

Earnings forecast and rating: we are optimistic about the future performance growth supported by a large number of medical construction orders and the coordination of various businesses on the medical service platform. We estimate that the company's EPS in 2017-2019 will be 0.20,0.23,0.28 yuan respectively, corresponding to PE 48.7,43.1 and 35.3 times, respectively, giving a "recommended" rating for the first time.

Risk tips: medical construction project progress is not as expected; accounts receivable recovery risk; buyer credit risk; extension M & An is not as expected.