Main points of investment

Items:

The company released the 2018 mid-term report: revenue in the first half of the year was 574 million yuan (+ 59.46%), net profit attributable was 48.2867 million yuan (+ 30.05%), and net profit after deduction was 48.9289 million yuan (+ 46.40%), which was basically in line with expectations.

Peace viewpoint:

Q2 maintains rapid growth and the business is still in the investment period:

The company basically achieved national distribution through mergers and acquisitions and the establishment of subsidiaries, and the volume expansion began to accelerate.

In the first half of the year, the income of the intensive sales model was 407 million yuan (+ 21.91%), and the gross profit margin was 33.93% (+ 2.10PP). Due to the rapid growth of the scale of mergers and acquisitions and other factors, the income of the simple sales model was 167 million yuan (+ 537.29%), and the gross profit margin was 33.25% (+ 1.93PP). According to the company's strategy, in the future, the simple sales model will gradually transition to a more binding intensive sales model. In terms of expense rate, the sales expense rate was 7.10% (- 1.20PP) and the management expense rate was 7.93% (- 0.42PP) in the first half of the year.

In a single quarter, Q2 achieved revenue of 314 million yuan (+ 59.20%), the growth rate was basically the same as that of Q1; the attributable net profit was 29.64 million yuan (+ 31.75%), the growth rate was slightly higher than that of Q1, mainly due to the increase of gross profit margin and the decline of expense rate.

At present, the company's business is still in the investment period, and the cash cost is very high. The net cash flow of operating activities in the first half of the year was-92.4593 million yuan, and the net outflow was further larger than that of Q1. In June, the company completed an additional offering with a net financing of 608 million yuan, ensuring the sustainability of the company's expansion.

SPD+ regional inspection center, intensive service has been upgraded:

While carrying out the traditional intensive service, the company upgrades the intensive service according to the needs of the hospital, and develops the SPD business and regional inspection center. Among them, SPD business extends the company's business from the simple supply of laboratory reagent consumables to the supply of hospital consumables (accounting for more than 10% of hospital procurement), and is supplemented by professional software systems to help hospitals achieve systematic, refined and traceable management, so as to improve hospital operation efficiency and reduce costs. At present, the company has signed SPD service agreements in Inner Mongolia and other places, and is expected to formally enter the use stage in the second half of the year, and continue to improve profit margins through detailed improvements in the process of operation.

Regional inspection center is a way to achieve the linkage of different levels of hospitals and test resources under the grass-roots level, which has been set up in many places all over the country. The company cooperates with China Resources and the local government to achieve unified supply of hospital groups and mutual recognition of samples. This model is expected to be replicated in more areas.

Maintain the "recommended" rating: Selis is the leader of the IVD channel in the Lianghu region. After a year of listing, the business has reached many provinces across the country. The company and China Resources and other companies and individuals with channel resources to form a strategic cooperative relationship to jointly develop the market. Business has been carried out through intensive services, SPD services and regional inspection centers, and if the expansion of other regions goes smoothly, the company is expected to achieve rapid expansion in the next 2-3 years to reach the business volume of first-tier channel operators. Considering the dilution factor, the EPS forecast from 2018 to 2020 is 0.65,0.93,1.23 yuan (originally 0.75,1.07,1.42 yuan), maintaining the "recommended" rating.

Risk Tips:

(1) Channel expansion is not as expected: the company's expansion plan across the country is not realized as scheduled, which may have a negative impact on performance; (2) the risk of price reduction: if the terminal price of the product is greatly reduced, the company may have a decline in gross profit margin because it is unable to transfer the pressure of price reduction to upstream enterprises in time.

(3) Policy risk: if there are policies that are not conducive to the IVD industry or intensive supply, it may affect the performance of the company.