The overall operation of 2019H1 Company is sound, and the profit end is under pressure due to the rapid growth of financial and sales expenses. At the same time, the company's cash flow continues to improve, and it has achieved positive net cash flow inflows for four consecutive quarters, and the operation quality continues to improve. Maintain the company's 2019-2021 EPS forecast of 0.61 EPS 0.71 won 0.84 yuan, corresponding to PE12/11/9 times, taking into account the company's long-term development space and financial indicators gradually sound and better, maintain the "buy" rating.

Revenue growth is solid and the profit side continues to be under pressure. 2019H1's operating income was 17.957 billion yuan, up 15.80% from the same period last year, and its net profit was 383 million yuan, down 33.99% from the same period last year, deducting 374 million yuan from non-net profit, down 35.46% from the same period last year. In the single quarter of Q2, the company's operating income was 9.216 billion yuan, an increase of 10.00% over the same period last year. The net profit of returning to its mother and deducting non-profit was 1.93 million yuan, down 35.61% and 38.94% respectively over the same period last year. During the reporting period, the company's business operation was sound, but due to the rapid growth of financial, sales and other expenses, the profit side of the current period continued to be under pressure.

The equipment continues to maintain a high growth rate. From a business point of view, 2019H1 Company: the revenue of the pharmaceutical sector is 10.224 billion yuan, up 5.49% over the same period last year; the income of the medical device sector is 7.664 billion yuan, up 32.75% over the same period last year, and the device sector continues to maintain a high growth rate. It is expected that the revenue of the testing business will grow by more than 20%, the intervention business will grow by about 14%, and the sectors with low share of general consumption, orthopaedics and equipment will achieve higher growth. The revenue of the mobile medical information sector reached 32.3002 million yuan, an increase of 104.20% over the same period last year. At present, Skyline Health has five professional software development companies, which have provided services to more than 100 hospitals at or above the second level. From a regional point of view, 2019H1's total sales in Shandong Province was 7.886 billion yuan, an increase of 11.26 percent over the same period last year, accounting for 44 percent of the company's overall income; non-provincial income was 10.072 billion yuan, an increase of 19.62 percent over the same period last year, accounting for 56 percent of the overall income, and non-provincial business continued to maintain rapid growth.

The gross profit margin declined slightly and the financial and sales expenses increased significantly. From the perspective of gross profit margin, 2019H1 pharmaceutical sector gross profit margin 10.20%, year-on-year decline 1.75Pcts, equipment sector gross profit margin 30.48%, year-on-year decline 1.69Pcts, due to the increase in the proportion of equipment business, the company's overall pharmaceutical equipment business gross profit margin of 18.87%, down 0.61Pcts. From the point of view of expenses, the sales expenses and financial expenses of 2019H1 increased significantly, of which the sales expenses increased by 25.48% compared with the same period last year, mainly due to the increase in personnel and corresponding expenses caused by the continuous development of new markets in the medical device business, and the financial expenses increased by 141.14% compared with the same period last year. It is mainly due to the substantial increase in financing such as asset securitization and supply chain finance, and the increase in the financing interest rate of the current period compared with the same period last year.

Cash flow continues to improve. The net cash flow of 2019H1's operating activities was + 247 million yuan, compared with a net outflow of 2.382 billion yuan in the same period last year. In 2018, the net cash flow of the company's operating activities was-2.348 billion,-34 million, + 1.498 billion and + 715 million, respectively, and the net cash flow of 2019Q1 and Q2 operating activities was + 105 million yuan and + 142 million yuan, respectively. By strengthening the management of accounts receivable and optimizing payment methods and tools, the company's cash flow continued to improve, achieving positive net inflows for four consecutive quarters, and the operating quality was gradually improved.

Risk factors. Bidding price reduction risk, financing risk, goodwill impairment risk, non-provincial business development is not up to expectations.

Investment advice and rating. The overall operation of 2019H1 Company is sound, and the profit end is under pressure due to the rapid growth of financial and sales expenses. At the same time, the company's cash flow continues to improve, and it has achieved positive net cash flow inflows for four consecutive quarters, and the operation quality continues to improve. Maintain the company's 2019-2021 EPS forecast of 0.61 EPS 0.71 euro 0.84 yuan, corresponding to PE 12-11-9 times, taking into account the company's long-term development space and financial indicators gradually sound and better, maintain the "buy" rating.