Main points of investment

I. event: the company released its three quarterly reports for 2017

From January to September 2017, the company achieved sales revenue of 518 million yuan, an increase of 25.08% over the same period last year; the net profit attributed to the parent company was 56.056 million yuan, an increase of 9.64% over the same period last year; and the net profit attributable to the parent company was 4819.8 yuan, an increase of 2.14% over the same period last year, slightly lower than expected.

In 2017, the company's Q3 achieved sales revenue of 195 million yuan in a single quarter, an increase of 33.78% over the same period last year, and the net profit attributed to the parent company was 177.64 billion yuan, an increase of-18.15% over the same period last year.

Second, our views:

1. The hemodialysis product line continues to grow rapidly, and the monitor product line is facing sales pressure.

From January to September 2017, the company's revenue side was stable, with sales revenue of 518 million yuan, an increase of 25.08% over the same period last year, of which revenue in the third quarter reached 195 million yuan, an increase of 33.78% over the same period last year, which was better than the 2017 semi-annual report. However, the growth rate of the company's profit side declined significantly, with a net profit of 56.056 million yuan from January to September, an increase of 9.64% over the same period last year, and a negative growth of 17.763 million yuan in the third quarter, with a year-on-year increase of-18.15%.

The rapid growth on the revenue side is mainly driven by the hemodialysis product line, which accounts for nearly 70% of the company's revenue. We estimate that the sales growth of the company's hemodialysis product line in the first three quarters was between 35% and 40%, which is an important driving force for stabilizing the company's performance.

The monitor product line of the company's other main product (accounting for about 30% of revenue) has been affected by changes in the domestic market, resulting in a decline in sales, resulting in a negative growth in sales revenue of this product. The company's profit fell to some extent in the third quarter because the gross profit margin of the monitoring product was about 47%, while the comprehensive gross margin of the hemodialysis product line was only about 35%. We judge that the company has less pressure on monitor sales in the fourth quarter, while the proportion of the hemodialysis product line is getting higher and higher, and can maintain a rapid growth of about 40%, and the company's fourth-quarter results are expected to accelerate growth.

2. The expense rate decreases year by year, but the change of product structure leads to a slight decrease in gross profit margin and net profit margin.

From January to September 2017, the company's gross profit margin and net profit margin were 38.0% and 13.0%, respectively. Due to the gradual increase in the proportion of hemodialysis products, the company's gross profit margin and net profit margin decreased slightly.

In terms of expenses, the company has effectively controlled the growth of sales expenses and administrative expenses. Sales expenses and management expenses were 74.639 million yuan and 47.947 million yuan respectively, up 30.1% and 11.8% respectively from the same period last year, down from 35.2% and 29.4% for the whole of 2016. It is the effective cost management that has maintained a downward trend in the company's sales expense rate and management expense rate in recent years. During the reporting period, the company's sales expense rate and management expense rate were 14.4% and 9.3% respectively, 0.9 percentage points and 1.0 percentage points lower than those for the whole of 2016.

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, an increase of 32.1%, 31.2% and 30.3% over the same period last year. The net profit attributed to the parent company is 84.654 million yuan, 116.714 million yuan and 15537.9 yuan, an increase of 26.1%, 37.9% and 33.1% respectively, and the corresponding diluted EPS is 0.58,0.80 and 1.06 yuan respectively. The corresponding PE were 48.08,34.87 and 26.19 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 a broad space for development in the outbreak of the hemodialysis market. Therefore, we continue to recommend and maintain the "overweight" rating.

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.