Main points of investment:

In the first three quarters of 2017, revenue increased by 7.07%, and net profit increased by 8.99%. In the first three quarters of 2017, the company achieved an income of 2.875 billion yuan, an increase of 7.07%, a net profit of 316 million yuan, an increase of 8.99%, and a deduction of 299 million yuan for non-net profit, an increase of 2.95% EPS0.399 yuan, slightly lower than expected. In the third quarter, the single-quarter income was 923 million yuan, down 3.76%; the net profit was 133 million yuan, up 12.57%; the non-net profit was 128 million yuan, an increase of 12.84%, and the income growth rate was 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 However, the net profit of returning home and deducting non-net profit have improved, mainly because the prices of Adi's main raw materials, such as ginseng and astragalus, are basically stable in the third quarter, which makes the profit growth rate pick up.

The price reduction growth rate of Eddie, the core product of the pharmaceutical industry plate, has declined, the sales volume of Lobatin has continued to grow at a high level, and the product structure has been continuously optimized. Aidi injection, the core product of the company's antineoplastic drugs, was affected by the stricter overall policy of traditional Chinese medicine injection in 2017. In the provinces that won the bid at a low price of 21.85 yuan per unit, the average winning price fell by about 11% compared with the same period last year. Although sales remained positive, the overall income growth rate of Eddie declined. The winning price of Lobaplatin, a new variety of antineoplastic drugs, has basically remained stable, and the growth rate of sales revenue has maintained a high growth rate of more than 50%. Sales for the whole year are expected to exceed 700 million, accelerating the growth to more than 1 billion of varieties. OTC is still in the recovery period, with nearly 50% of annual tasks completed in the first half of the year, and the share of income is expected to decrease gradually in the future. At the same time, the proportion of income of the company's second-tier products, such as cardio-cerebrovascular and gynecological drugs, continues to increase, which is expected to lead to the optimization and adjustment of the product structure of the overall drug plate. 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 reach 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 this year, the growth rate of medical service revenue exceeded 93%, accounting for more than 18%, slightly exceeding expectations. The comprehensive net interest rate is expected to reach 15%, and the net profit contribution for the whole of 17 years is expected to reach 100 million yuan.

During the first three quarters, the expense rate decreased significantly, and the gross profit margin increased slightly compared with the previous three quarters. The gross profit margin in the first three quarters of 2017 was 74.26%, down 4.65%, which was mainly affected by the increase in the proportion of medical service business, but slightly increased by 0.79% compared with the previous quarter; the expense rate during the period was 59.57%, down 3.91%, of which the sales expense rate was 48.85%, down 4.45%, and the effect of 17-year fee control became more significant; the management expense rate was 8.95%, an increase of 0.44% The rate of financial expenses was 1.77%, an increase of 0.09 percentage points. The operating cash flow per share was 0.6026 yuan, an increase of 79.45%, mainly due to the addition of Ruike, Huajian, Chaoyang Hospital and other consolidated tables 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 0.58,0.72,0.84 to 0.56,0.68,0.80 yuan in 17-19, an increase of 15.5%, 21.6% and 16.8%, respectively, with a price-to-earnings ratio of 24 times, 20 times and 17 times respectively.