Items:

Publish the annual report in 2019 and the quarterly report in 2020. In 2019, the company achieved operating income of 441 million yuan, an increase of 12.66% over the same period last year, and a net profit of 41.23 million yuan, an increase of 1.96% over the same period last year. In the first quarter of 2020, the company achieved operating income of 55.11 million yuan, down 14.39% from the same period last year, and its net profit was 620000 yuan, down 90.35% from the same period last year.

Peace viewpoint:

Revenue growth is lower than expected, and order potential should not be effectively released: the company achieved 441 million yuan in revenue for the whole year, an increase of 12.66% over the same period last year, and its growth performance was lower than we expected, especially the decline in Q4 revenue in a single quarter compared with the same period last year. Judging by the large order winning bids disclosed in the past two years, the total order volume of the company in 2018-2019 should be much higher than before. Perhaps due to the late signing of some contracts in 2019 and the longer implementation cycle of large orders, revenue recognition has been delayed accordingly. From the point of view of business model, the company focuses on the overall solution of large hospitals, and the proportion of orders from newly-built hospitals has increased significantly in recent years. The amount of such projects is high, and the progress is easily affected by customer factors, which fluctuates greatly. Coupled with the fact that the top-level design of the IT of large hospitals requires high-level talents, the total number of employees of the company in 2019 only increased from 549 to 591, insufficient production capacity may also be an important reason why income growth failed to match orders.

The profit performance is not satisfactory, but the cash flow has improved significantly: mainly due to the low income growth, the company's annual net profit is only 41.23 million yuan, roughly the same as the previous year. On the cost side, due to a slight increase in the proportion of scene-based application business with low gross margin and a decline in gross profit margin, the comprehensive gross profit margin decreased slightly by 0.57 ppt;. Overall, the rate of sales and R & D expenses decreased slightly, but the rate of management expenses increased by 3 ppt due to the impact of equity incentive costs and the introduction of management personnel. The provision of bad debts corresponding to the receivables of about 50 million yuan in the PLA General Hospital project is still an important source of credit impairment, but the project has recently completed the preliminary test and entered the settlement stage, and may be recovered within the year. The operating net cash flow of the company in 2019 was 41.42 million yuan, which was basically the same as the net profit and improved significantly compared with the previous year. In addition, a small increase in per capita income of $33000 to $746000 was also a positive factor.

The short-term impact of the epidemic is significant, if the fixed increase and landing is conducive to business expansion: in the first quarter of 2020, the company's revenue fell 14.39% compared with the same period last year, and its net profit was only a small 620000 yuan. With the relief of the impact of the epidemic, hospital IT construction will gradually recover, or even strengthen, and the company's business is mainly focused on the large top three with strong financial strength, we do not expect to have much impact for the whole year. Recently, the company has proposed to raise no more than 500 million yuan for the integrated construction project and replenishment of intelligent hospitals. The main goal of the project is to build an integrated new generation of intelligent hospital IT system for hospitals with insufficient budget in a single year, and to recover investment and make profits through back-end operation. We believe that the smooth implementation of the project will be of substantial help to the expansion of the company.

Profit forecast and investment advice: combined with the company's financial report and publicly visible order information, we adjust our profit forecast for 2020-2022. The estimated revenue is 5.58,6.86 and 838 million yuan respectively (8.16 yuan and 1.08 billion yuan before 2020-2021). The year-on-year growth rate was 26.5%, 23.0% and 22.2%, and the net profit was 0.69,1.04,133 million yuan respectively. Year-on-year growth of 68.1%, 49.4%, 28.2%. The corresponding EPS is 0.59,0.88,1.13 yuan (before 2020-2021 is-0.37,0.52 yuan), and the corresponding closing price on April 30 (27.26yuan) is 46.1x, 30.8x, 24.1x.

At present, the company mainly focuses on the overall solution for large-scale top three, has advantages in military hospitals, and has formed successful cases such as Hangzhou Shuxin platform in regional medical and health fields. its customer group and business positioning is different from that of most competitors, and it is still a young small company in scale, with plenty of room for growth. If the degree of production of the company is greatly improved, regional platform cases can be widely replicated, and military hospital IT construction resumes, the company's expansion rate is expected to increase significantly. We believe that it is a potential medical IT enterprise. However, due to the lower-than-expected 2019 results, the landing progress of the order was difficult to predict, and we downgraded the company from "highly recommended" to "recommended".

Risk Tips:

1) the promotion of the project is not good. The company has launched a new generation of integrated system in the hospital field, and there have been a number of landing cases in the regional platform field, but if the project promotion is not good, the growth can not meet expectations.

2) lack of human resources. The company emphasizes the provision of overall solutions, and the business is mainly for large institutions with complex needs, which requires high quality of talents, and the insufficient supply of qualified talents will limit business expansion.

3) the risk of high fluctuation of income and profit. The company's business model is mainly based on the overall solution, and the amount of project orders is generally higher than that of the same industry, but at this stage, the enterprise scale is still small, and its revenue recognition time has a greater impact on the financial indicators.

4) the risk of historical bad debts. In recent years, the company's performance is greatly affected by the bad debt provision of historical project receivables. If the bad debt provision is still unable to be repaid, the corresponding bad debt provision will continue to erode the book profit to a certain extent.

5) adverse effects of epidemic situation. COVID-19 's epidemic has had an impact on project implementation and bidding activities, and may also drag down the IT budgets of some medical institutions, which may affect the annual orders and income of medical IT enterprises.