According to the semiannual report of 2018, the company reported that the income in the first half of 2018 was 574 million yuan, up 59.46% from the same period last year, the net profit was 48.29 million yuan, up 30.05% from the same period last year, and the net profit deducted from non-return was 48.93 million yuan, an increase of 46.40% over the same period last year. The net operating cash flow was-92.46 million yuan, an increase of-118% over the same period last year.

The performance is in line with expectations, Hubei Province and Shandong, Beijing and other places to expand smoothly, rapid income growth. The semi-annual results are in line with expectations, and the company's semi-annual income and net profit have continued a good growth trend since the first quarter. In a single quarter, the company achieved revenue of 314 million and net profit of 29.64 million in 2018, up 60% and 32% respectively over the same period in 2017. On the revenue side, the revenue of the company's intensive sales model was 407 million yuan, up 21.91% from the same period last year, while that of the simple sales model was 167 million yuan, an increase of 537.3% over the same period last year. From the perspective of income sub-regions, the advantages in Hubei province increased again, with income reaching 232 million yuan, up 78.06% over the same period last year, 66.31 million in Shandong, up 393% over the same period last year, and 74.08 million yuan in new development in Beijing. The regional income of South China and Henan increased slightly, while the regional income of Jiangsu declined. On the profit side, the company's gross profit margin was 33.73%, an increase of 1.94 percentage points over the same period last year, mainly due to the improvement of the scale effect of the company, which effectively reduced the procurement cost of products through collection and acquisition; the rate of sales expenses decreased by 1.2 percentage points to 7.1%; the rate of management expenses decreased by 0.42 percentage points to 7.93%, mainly because the increase of operating efficiency expenses was lower than that of revenue growth.

Layout inspection intensive business + regional testing center + medical consumables intensive operation service (SPD), the model conforms to the general trend of medical reform, rapid expansion, is expected to become in vitro diagnosis and even the whole medical consumables distribution leading enterprise. Medical reform has entered the deep water area, large public hospitals cancel drug bonus and control the proportion of drugs, hospitals pay more attention to cost and capital turnover, the company's three major businesses comply with the trend of medical reform, the expansion is relatively smooth. Inspection intensive business, relying on its own channels and service advantages, the company has signed a 6-10-year agreement with medical institutions to centralize the distribution of products for customers and provide value-added services such as instrument maintenance, training and technical support, which are well received by medical institutions. In addition to expanding Hubei and other advantageous areas, the company effectively replicates its intensive business in other places by cooperating with dealers. Beijing and Shandong regions have become second only to Hubei and Hunan in income in the first half of 2018, showing the company's strong ability to expand in other places. As for the regional testing center, the company deeply integrates the resources of all parties by establishing close ties with partners such as the government, central enterprises and medical institutions, and radiates the testing in the subordinate areas of the regional testing center. compared with the previous third-party laboratories and other models, this model can achieve mutual recognition of results, reduce repeated testing, have a close relationship with the hospital terminal, and form a business model with Selis's own characteristics. In the later stage, with the rich products of the company's reagent end, the company can replace the purchased varieties with its own products to further improve the company's profit margin. SPD business is the company's key business in the past two years, expanding the company's past distribution scope from in vitro diagnosis to the entire medical consumables, covering a variety of needs. The company is deeply involved in the hospital's procurement and supply, logistics management, financial settlement and other systems to solve the hospital pain points. in recent years, the company has successively signed SPD agreements with influential enterprises in Inner Mongolia Medical University affiliated Hospital and other provinces and cities. In the future, with the scale effect of intensive operation services appearing, the company's regional monitoring center project continues to land, and the company deepens its cooperation with large hospitals through SPD, the company's business will expand rapidly and is expected to become a leading enterprise in in vitro diagnosis and even the whole medical consumables.

Investment advice: buy-An investment rating, 6-month target price of 20.4 yuan. We expect the company's net profit from 2018 to 2020 to be 138 million, 2.31, respectively. 355 million yuan, with a growth rate of 48%, 64% and 54% respectively, corresponding to a valuation ratio of 25x, 15x and 10x for PE from 2018 to 2020. Considering the clear business model and outstanding growth, Buy-An is given an investment rating of 20.4 yuan over a six-month target price, which is equivalent to a dynamic price-to-earnings ratio of 30 times 2018.

Risk hint: the new business expansion is not as expected, the reduction in the price of consumables leads to a decline in the company's net profit level, and the company's cash flow deteriorates.