1. Event

1) the company released its three-quarter report for 2019. In the first three quarters of 2019, the company achieved a total operating income of 293 million yuan, an increase of 27.18% over the same period last year; an operating profit of 37.3079 million yuan, an increase of 37.46% over the same period last year; a net profit of 34.6734 million yuan, an increase of 34.98% over the same period last year; and a net profit of 28.6865 million yuan, an increase of 28.44% over the same period last year. Of this total, operating income in the third quarter was 107 million yuan, up 25.17 percent over the same period last year; operating profit was 13.2937 million yuan, up 10.38 percent over the same period last year; net profit from home was 13.4419 million yuan, up 16.78 percent from the same period last year; and net profit from non-return was 9.5336 million yuan, down 6.75 percent from the same period last year.

2) the company issued a pre-plan for the non-public offering of A-shares. The number of shares in this non-public offering shall not exceed 23461200 shares (including capital), and the total amount of funds to be raised shall not exceed 555.3268 million yuan (including capital). The net amount after deducting the issuance cost will be used for the "intelligent hospital integration project based on the Internet of things and big data technology".

2. Our analysis and judgment

1) the performance is in line with expectations and the gross profit margin increases

In the first three quarters of 2019, the company maintained rapid revenue and net profit growth, in line with expectations as a whole. The company's gross profit margin in the first three quarters was 46.40%, an increase of 2.41pcts over the same period last year. The company's expense rate in the first three quarters was 34.34%, an increase of 2.70pcts over the same period last year, and the overall control was better. The slight increase was mainly due to the impact of equity incentive expenses, resulting in a greater increase in management expenses. Bidding for large hospitals is mostly concentrated in the fourth quarter, and the company's revenue is expected to be further released in the fourth quarter.

2) there is a broad market demand for non-public offerings and fund-raising projects.

The number of shares in this non-public offering of the company shall not exceed 23461200 shares (including capital), and the total amount of funds to be raised shall not exceed 555.3268 million yuan (including capital). The net amount after deducting the issuance cost will be used for the "intelligent hospital integration project based on the Internet of things and big data technology".

The policy promotes the construction of smart hospitals, the Internet of things and big data technology accelerate the penetration in the medical field, and the related needs are released. In March 2019, the National Health Commission issued the Circular on issuing a graded Evaluation Standard system for Hospital Wisdom Services (for trial implementation), which is aimed at hospitals at or above the level 2 that provide intelligent services in applied information systems. In July 2019, the Health Commission issued a working letter to carry out the grading evaluation of hospital intelligent services in 2019. Driven by intensive policies, hospital-end Internet of things and big data projects are also increasing, and big data projects have the characteristics of shorter implementation cycle and higher pricing, so gross profit margins tend to be higher. Tertiary hospitals have a stronger demand for information construction, more functional requirements, a higher level, and a broader demand space for the Internet of things and big data technology. The company's investment project is conducive to give full play to the company's customer resources and technical advantages, and further enhance the competitiveness of the company.

The company's fund-raising project will target tertiary hospitals to provide tertiary hospitals with integrated construction and operation and maintenance of intelligent hospitals based on the Internet of things and big data technology. The project plans to build, operate and maintain nine integrated platforms for intelligent hospitals based on the Internet of things and big data technology, with a total investment of 555.3268 million yuan and a planned investment of 555.3268 million yuan. The project is divided into three batches, each batch of construction period of 12 months, the total construction period of 36 months, the main implementation body is Zhejiang Helen Science and Technology Co., Ltd. The construction site of the project is located in tertiary hospitals all over the country.

3. Investment suggestion

The company mainly uses the general contract model to provide overall information solutions for large and medium-sized medical institutions. In the process of cooperation with the top third-class hospitals in China, the company has strengthened the grasp of the medical information needs of hospitals and the understanding of clinical business processes, and is rich in technical reserves in the field of clinical information. The new generation hospital information system independently developed by the company is currently the largest new generation hospital core business system based on HTML5 and cloud computing technology in China, supporting cloud deployment, collectivized hospitals and medical couplet applications. The company's fund-raising project has a broad market demand space, which is conducive to give full play to the company's customer resources and technical advantages, and further enhance the competitiveness of the company. Maintain the "recommended" rating, and forecast EPS 0.47, 0.80, and 1.06 yuan in 2019-2021, corresponding to PE 57.6X/34.1X/25.8X in 2019-2021.

4. Risk hint

The risk that medical institutions' demand for large-scale programs is lower than expected. The risk that policy does not advance as expected. Liquidity risk caused by small current market capitalization.