Event: the company announced and Lingwu City people's Hospital, Lingwu City Hospital of traditional Chinese Medicine signed the "Medical supplies intensive operation platform construction and daily operation management service cooperation agreement", the contract term is three years.

After the official operation of this SPD order, the new homing profit for the company is about 5 million, accounting for 5.3% of the homing net profit in 2017. According to the agreement, the company provides medical consumables intensive operation platform construction and daily operation management services (i.e. SPD business) for two hospitals in Lingwu City, including supplier management, centralized procurement, centralized warehousing and logistics distribution, hospital logistics management, centralized settlement management and other operational services. Lingwu City, Yinchuan, Ningxia was selected as one of the top 100 industrial counties (cities) in 2018, with a resident population of 300000 and 1461 beds in health institutions in the city. Lingwu people's Hospital and traditional Chinese Medicine Hospital are both second-class hospitals with 480 beds. According to the number of beds and the amount of medical expenditure in Lingwu City, we estimate that the consumable income of the two hospitals is about 200 million. After the formal operation of SPD, the company can increase its return profit to about 5 million, accounting for 5.3% of the net profit in 2017.

SPD orders once again landed across provinces, showing the company's significant competitive advantage in this area, and the company will increase its revenue and net profit from 2019. The company's landing SPD order in Ningxia is another inter-provincial hospital project besides Guangxi, Inner Mongolia and Guangdong, which shows the company's strong ability to take orders. The company's advantages are mainly reflected in: 1, its own ability, mainly reflected in the SPD omni-directional solution design and hospital logistics management ability. 2. The strength of the partner. The company and China Resources Medical have formed a strategic cooperative relationship in the field of medical device distribution. In addition, the company has netted the best quality dealers to the company's platform by establishing subsidiaries. The distributor cooperates with the company to win the hospital order through professional knowledge and hospital relationship, and the company provides funds and personnel for operation. 3. The company has a remarkable first-mover advantage and actively seizes the entrance of consumables in super hospitals. At the present stage, the SPD model is just in the promotion period, and the larger the hospital is, the more motivated it is to do the SPD supply management of all consumables, which is the golden period to seize the entrance of consumables in super hospitals. As most of the company's SPD business orders began to be obtained in the second half of 2018, the construction period of the operating platform is expected to be half a year, trial run for half a year, and then start formal operation. As a result, the company's revenue and net profit may increase from 2019.

SPD is in line with the fundamental demands of hospitals and the general trend of medical reform, and will become the mainstream supply mode of consumables for hospitals (including some super hospitals with income above 4 billion) in the future. Consumables management has always been the pain point of hospital management, the only way out is to find professional and reliable third-party operation, full consumables SPD business arises at the historic moment. From the perspective of the trend of medical reform policy, at present, some parts of China take the lead in promoting the group purchase reform of consumable materials GPO, and the supply chain management of consumable reagents (including in-hospital supply chain extension service) is also being implemented in many places. According to the disclosure of local government websites, medical insurance bureaus in Shaanxi, Inner Mongolia, Heilongjiang and other regions have taken over equipment procurement. In the future, health insurance will pay more attention to saving medical insurance funds on medical consumables. According to the results of our research, hospital SPD supply chain management can help hospitals save 5-8% of costs and comply with the general trend of health care reform. At the same time, the process is standardized, easy to copy, in line with the interests of many parties, and is expected to become the mainstream mode of hospital consumables management in the future.

A number of management holdings and listed company buybacks show strong confidence in the development of the company. According to the announcement, on September 18, 2018, Liu Wenhao, Huang Yongxi, Wang Wenbin and other senior executives completed a 7.02 million increase in their holdings, and on October 20, the chairman of the company, Mr. Wen Wei, planned to increase their holdings by 2000 yuan to 50 million yuan. On October 20, 2018, the announcement has completed the first repurchase of 50 million yuan, and announced on October 22 that it intends to increase the repurchase amount of 3000 yuan to 80 million yuan. A number of management holdings and listed company buybacks show strong confidence in the development of the company.

Investment advice: buy-An investment rating, 6-month target price of 24 yuan. The company's net profit from 2018 to 2020 is expected to be 1.23,1.97 and 313 million yuan, respectively, with growth rates of 31%, 61% and 59%, respectively. The current share price is valued at 32X, 20x and 13x respectively. Given a clear business model and outstanding growth, the six-month target price is 24 yuan, equivalent to a dynamic price-to-earnings ratio of 25 times 2019.

Risk tips: new business development is not as expected; the reduction in the price of consumables leads to a decline in the company's net profit; cash flow does not improve as scheduled; buyback implementation is not as expected.