Brief performance review Kehua Biotech announced its 2017 three-quarter report. The company achieved operating income of 1.14 billion dollars in the first three quarters, an increase of 9.65% over the previous year; realized net profit of 186 million yuan, an increase of -8.99%; and achieved net profit of 178 million dollars after deducting non-return to the mother, a year-on-year decrease of 6.7%. Among them, the third quarter achieved revenue of 390 million yuan, an increase of 11.27% over the previous year; realized net profit of 60 million yuan, a year-on-year decrease of 9.93%; and realized a net profit of $60 million, a year-on-year decrease of 8.7%. The business analysis company's revenue continued to grow in the third quarter, but net profit declined somewhat. The decline in profit for the current period, we estimate, on the one hand, is related to the company's chemical emission and the slow recovery of export tenders; on the other hand, it is also due to changes in the company's business structure. For example, due to the winning bid for a telemedicine full-coverage equipment procurement project at a township health hospital in Guizhou Province, there were many costs and expenses for stocking and installation in the third quarter, while net operating cash flow declined markedly. Furthermore, we estimate that Guangdong Xinyou completed a new delivery in September, and that the third quarter's combined contribution will be minimal. However, we estimate that the growth of the company's core business will continue to grow. The company's self-produced excellent series of biochemical reagents has maintained an increase of more than 10%, and the enzyme free business has also continued to grow. The positive impact of winning the bid for primary procurement in Guizhou will be fully reflected in the future: the company won the bid for the telemedicine full-coverage equipment procurement project (fully automatic biochemical analyzer) for township health hospitals in Guizhou Province. The number of bids won was 416 units, and the total bid amount won was 25.66 million yuan. This time, all of the winning bids have been completed. The average price of the instrument that won the bid this time is low. We estimate that the instrument procurement profit is relatively low, which did not contribute significantly to the current performance. However, large-scale instruments successfully enter the terminal and are expected to generate considerable reagent revenue in the future, and their profit contribution may be far higher than instrument procurement itself. There is hope for collaboration: in the third quarter, the company decided to invest 153 million yuan to acquire 55% of the shares of Guangdong Xinyou Biotechnology Co., Ltd., and completed procedures related to equity transactions during the reporting period to obtain first-level agency rights for Hitachi Biochemical in the Guangdong, Guangxi, Hunan and Hainan markets. In addition to bringing Xinyou's own performance in this merger and acquisition, we believe that Hitachi Biochemistry is an open platform, and the quality of Kehua's own reagents is at a first-class level in China. In the future, Kehua and Xinyou are expected to collaborate in the biochemical business, further increasing the company's market share in the biochemical diagnosis market in the four provinces of South China, especially the middle and high-end markets. Investment recommendations We predict that the company's EPS for 2017-2019 will be 0.47, 0.53, and 0.63 yuan respectively, with a year-on-year increase of 3%, 12%, and 20%. The risk of maintaining an “increase in holdings” rating suggests that biochemical reagent sales growth is falling short of expectations; export bidding recovery is slower than expected; and chemiluminescence marketing is slower than expected.