Event: the company plans to set up Hunan Mei'ou Medical Technology Co., Ltd. with its own capital of 9.8 million yuan and Aier Ophthalmology Co., Ltd. the registered capital of the joint venture company is 20 million yuan, and the company holds 49% of the shares.

Set up a joint venture with Ayre Ophthalmology to develop ophthalmic drugs and care products. The main scope of the joint venture is the R & D, production and sales of ophthalmic medical products, of which 51% are owned by Eye and 49% by Laimy. As Leimei Pharmaceutical Co., Ltd. has focused on new drug research and development for many years, historical cases such as Esmeprazole and nano-carbon suspension injection are its important and exclusive products, and their research ability is more outstanding. And its subsidiary Hunan Kangyuan has more than 20 years of aseptic preparation production history, rich experience and sufficient production capacity. Ayre Ophthalmology is the largest in the world and has nearly 300 ophthalmic chain medical institutions. It currently has a leading advantage in chain networks, professional brands, technical personnel, academic research, management system and incentive mechanism. The number of outpatients in 2018 was 5.736 million, an increase of 13% over the same period last year. The cooperation between the company and Ayre Ophthalmology will complement each other and combine the advanced clinical experience in the field of ophthalmology with Leimei's experience in product development and production. with the help of the hospital system of Aier Eye Hospital to develop ophthalmic drugs and care products such as myopia and xerophthalmia in children and adolescents, and gradually build the company's ophthalmology platform to form a new profit growth point.

The domestic myopia rate is high, and the market space for ophthalmology treatment may exceed 10 billion. Under the influence of the rapid economic development in East Asia, social investment in children and young people's education has gradually increased. Long-term high-intensity close-range eye use has led to high myopia rates in South Korea, Singapore, Hong Kong, China and Taiwan. In the 50 years from 1950 to 2000, the rate of myopia in East Asian countries increased rapidly from 20% to about 80%. According to a survey conducted by the National Health Commission, the overall incidence of myopia among children and adolescents in China is grim. In 2018, the overall myopia rate of children was 53.6%, and the myopia rate of high school students was as high as 81%. We estimate that the number of myopic children and young people aged between 6 and 15 in China is about 80 million. At present, there are about 1.1 million myopic surgery and 750000 keratoplasty lenses every year, and the treatment penetration rate is less than 3%. The potential market space is huge. The company announced that its ophthalmology development is mainly focused on ophthalmic drugs and care products such as myopia and xerophthalmia. Our analysis is mainly in three directions: 1) pseudomyopia, the current treatment methods are mainly refractive surgery and non-surgical therapy (keratoplasty), such as the development of drugs to treat pseudomyopia, its market space or more than 10 billion yuan. 2) the main focus of ophthalmic drugs for xerophthalmia is that the incidence rate of the population is high, and it is mainly people who use computers for a long time, and its market space is large; 3) the washing solution is expected in nursing products, which is mainly aimed at contact lens and keratoscope users. According to the estimate of 750000 pairs of keratoplasty lenses per year, its market space may reach 1 billion yuan. This cooperation with Ayre Ophthalmology can give full play to the company's advantages in product research and development, and the early stage of the product can be rapidly promoted in the form of hospital preparations, while speeding up the application of new drugs and completing the construction of the ophthalmology platform.

Profit forecast and rating. We expect EPS to be 0.19,0.30,0.46 yuan respectively from 2019 to 2021, with corresponding valuations of 32 times, 20 times and 13 times, respectively. It is expected that Esmeprazole and nano-carbon suspension will grow rapidly, and his contribution to Lafei will increase or exceed expectations. This cooperation with Ayre Ophthalmology is a new profit point. We are optimistic about the company's performance growth in the next three years and maintain its "Buy" rating.

Risk tips: product sales may be lower than expected, drug price reduction risk, subsidiary loss increase risk, cooperation project schedule or lower than expected, other unpredictable risks.