Key points of investment
Incident: The company released its 2018 mid-year report, achieving operating income of 974 million yuan, an increase of 29.74% over the previous year, and Guimu's net profit of 137 million yuan, an increase of 8.50% over the previous year, after deducting non-net profit of 133 million yuan, an increase of 10.85%. At the same time, it forecasts that Guimu's net profit growth rate for January-September 2018 will be 0-20%.
Performance is in line with expectations, and channel integration has greatly increased revenue growth. In the second quarter of 2018, the company achieved revenue of 522 million yuan, an increase of 34.07% over the previous year, and the net profit of the mother was 88.49 million yuan, an increase of 34.06% over the previous quarter. The revenue growth rate increased further from the first quarter, mainly benefiting from the consolidation benefits brought by channel integration. We expect the channel consolidation revenue to be close to 200 million yuan in the first half of 2018, with a combined profit of 10+ million yuan. The cost rate for the period was 20.41%, an increase of 0.42 pp, which remained stable. Among them, the sales expense ratio decreased 1.27 pp from the previous year as the scale of revenue expanded, and the management fee rate increased 1.51 pp over the previous year due to increased intermediary service fees due to increased mergers and acquisitions; the company's comprehensive gross profit margin was 39.74%, down 1.57 pp from the end of 2017. The main reason was that in the process of integrating channels, the proportion of agency products with low gross profit gradually increased, lowering the overall gross margin level. The company's overall net profit margin was 15.34%, down 1.44 pp from the previous year.
Self-produced products have grown steadily, and integrated channels have led to rapid growth in agency business. In the first half of 2018, the company's self-produced products achieved revenue of 392 million yuan, an increase of 4.03% over the previous year, and agent products reached 574 million yuan, an increase of 56.40% over the previous year. The rapid growth rate of agent products was mainly due to the fact that the company completed the integration of 5 dealers including Xi'an Shenke one after another since 2017. Since some dealers were originally company agents, some self-produced product revenue was reduced according to agent statistics.
Accelerate the development of innovative channel businesses while actively deploying new products. The company actively expanded hospital collection, cooperative construction and regional testing center business through its subsidiary Kehua Medical. Following the implementation of the Tongxu County People's Hospital and Taixing Hospital projects, Kehua Mingde was established through cooperative establishment to expand hospital collection and other businesses in Hebei and surrounding markets. At the same time, the company intends to acquire 62% of the shares of Tianlong and Suzhou Tianlong in Xi'an to improve the molecular diagnosis product line. At the same time, it also intends to acquire 26.7% of Suzhou Changguang Huayi's shares to further enhance its competitive advantage in the chemiluminescence field.
Profit forecast and valuation: We expect the company's revenue to be 20.88, 23.04, 2,547 billion yuan in 2018-2020, YOY will be 30.99%, 10.36%, 10.51%, net profit of 2.42, 2.80, and 327 million yuan, YOY will be 10.91%, 15.86%, 16.81%, corresponding to EPS of 0.47, 0.55, and 0.64 yuan. The company's current stock price corresponds to 24 times PE in 2018, considering the brand channel advantages of the company's established IVD leaders and The development of the collection business will help increase the market share of the company's products. We believe that the company's reasonable valuation range in 2018 was 25-30 times PE, and the reasonable price range was 11-15 yuan, maintaining the “increase in holdings” rating.
Risk warning: risk of product promotion falling short of expectations, risk of accounts receivable, risk of policy changes.