Main points of investment

Recently, Kehua Biology released its quarterly report for 2018. During the reporting period, the company realized operating income of 452 million yuan, an increase of 25.08% over the same period last year. It realized a net profit of 48.5251 million yuan, an increase of 10.89% over the same period last year. It realized a net profit of 47.8081 million yuan, an increase of 18.47% over the same period last year.

It is estimated that the net profit from January to June 2018 is about 1.26-152 million yuan, an increase of 0-20.00% over the same period last year.

Profit forecast and rating: as one of the leading companies in the domestic IVD industry, the company has a wide range of products and sound sales network. The company continues to promote the research and development of new products and the Chaoyang business segment (chemiluminescence, molecular diagnostics, overseas business), which is expected to usher in a recovery of endogenous growth; with the help of Fangyuan Capital, the company is expected to accelerate its epitaxial development and cut into new market segments of IVD and its related industries. We maintain our profit forecast for the company and expect the company's EPS to be 0.47,0.54 and 0.62 yuan respectively from 2018 to 2020, and the share price corresponding to PE at 29,26 and 22 times on April 27, 2018, respectively, continuing to maintain the company's "prudent overweight" rating.

Risk tips: product sales are not up to expectations; epitaxial development is slower than expected; export business recovery is slower than expected.