Event: the company released its semi-annual report 2020 on the evening of August 10, 2020. In the first half of 2020, the company achieved an operating income of 3.64 billion yuan, an increase of 1.30% over the same period last year, a net profit of 401 million yuan belonging to shareholders of listed companies, an increase of 3.74% over the same period, and a net profit of 389 million yuan after deducting non-recurring profits and losses belonging to shareholders of listed companies, an increase of 7.98% over the same period.

Affected by the epidemic, the growth rate of performance is sluggish, and the health and financial industries are still the main support for revenue: in the first half of 2020, the company achieved operating income of 3.64 billion yuan, an increase of 1.30% over the same period last year, of which the revenue of the health industry reached 823 million yuan, an increase of 18.25% over the same period last year, accounting for 22.61% of operating income and an increase of 3.24pct over the same period last year. Another revenue support is the financial industry, with revenue in the first half of the year reaching 1.38 billion yuan, an increase of 3.51% over the same period last year, accounting for 37.91% of revenue, up 0.81 pct over the same period last year. Government industry revenue reached 317 million yuan, an increase of 1.19% over the same period last year, and the revenue remained basically stable compared with the same period last year. Affected by the epidemic in the first half of the year, the energy, Internet and computer services, and communications industries achieved revenue of 439 million yuan, 147 million yuan and 313 million yuan respectively, with revenue declining to varying degrees, to-4.47%,-8.36% and-18.45%, respectively.

Revenue from technical services increased significantly, raising the overall gross profit margin: the comprehensive gross profit margin of H1 company in 2020 was 34.73%, slightly higher than that of 33.61% in the same period last year, mainly due to the high increase in revenue from technical services with higher gross profit margin (up 44% from the same period last year). Specifically, in the first half of 2020, the gross profit margin of the company's system integration income was 14.89%, an increase of 0.03pct over the same period last year, basically in line with 19H1; the gross profit margin of software revenue was 88.39%, a significant increase of 2.94 pct over the same period last year; and the gross profit margin of the company's technical services sector was 59.87%, down 1.47% from the same period last year. In terms of different industries, the gross profit margin of the health industry was 54.73%, up 1.23 pct from the same period last year; the gross profit margin of the financial industry and the energy industry was 24.65% and 34.51% respectively, slightly higher than that of the same period last year, and the gross profit margin was basically stable.

The proportion of R & D expenses is basically the same as that of the previous period, and the rate increased slightly during the period: in 2020, the total R & D investment of H1 Company was 575 million yuan, of which 394 million yuan was spent, accounting for 68.52%; and the proportion of R & D expenses in revenue was 10.83%. It is basically the same as the value of 10.90% in the same period last year. In terms of period expenses, the H1 sales expense rate in 2020 was 5.05%, an increase of 0.54pct over the same period last year; the management expense rate was 7.54%, with a slight increase of 0.19pct over the same period; and the financial expense rate was 1.43%, an increase of 0.41pct over the same period last year, mainly due to an increase in corporate loan interest and a decrease in deposit interest in the first half of 2020. In terms of net profit, the company achieved a net profit of 401 million yuan, an increase of 3.74% over the same period, and a non-return net profit of 389 million yuan, an increase of 7.98% over the same period.

The traditional business of the health industry continues to give full play to its technological advantages, and the epidemic catalytic innovation business has been launched: in the informationization of the core business system of traditional hospitals, Donghua Medical has successfully won the bid for the whole-hospital-level PACS system project of the people's Hospital of Tibet Autonomous region, and since then the company has customers all over 31 provinces in the mainland. During the epidemic, Donghua Medical successfully delivered the information management systems of Mount Vulcan and Leishenshan Hospital within 15 days, and undertook the construction of the epidemic prevention and control information platform of the National Health Commission, authorizing more than 10 billion calls nationwide within two months of launch, with the maximum number of calls per day exceeding 300 million; in terms of Internet medical innovation business, relying on the ecological structure of iMedical Cloud, the company launched two major solutions: health consultation platform and Internet hospital. Among them, the Healthcare consultation platform has successively launched a "new pneumonia consultation platform" for 15 hospitals, including the third people's Hospital of Datong City, providing patients with epidemic situation and effective consultation with doctors. At the same time, Donghua Medical has successively built an Internet hospital ecosystem for more than a dozen hospitals, including Beijing traditional Chinese Medicine Hospital and Qingdao University affiliated Hospital, which can realize the closed-loop diagnosis and treatment process of patients' remote registration, consultation, diagnosis, prescription and drug distribution. In terms of electronic medical records, Donghua Medical has obtained the record of blockchain information service for its product "hBlock Health chain". The platform has been officially operated in six hospitals, including the third people's Hospital of Datong City, with a total of 24.05 million transactions and 1.063 million cases as of June. During the 20H1 period, the company's dual layout of traditional business and innovative business, expand the comprehensive advantages, coordinate to enhance the market share, reflecting the company's great development potential in the health industry.

Financial companies actively seek cooperation to improve business coverage: in the field of traditional banking business, the company creates a series of "financial intelligence" industry solutions to provide differentiated services for different types of banks. join hands with strategic partners such as Tencent and Huawei to strengthen the competitiveness of the company's industry. In the field of cloud escrow, the company cooperates with Tencent to create a full-stack financial service system, providing offline basic module products and online mobile banking, cloud Hewlett-Packard series online loan products, etc. at present, a benign financial ecosystem has been formed in Inner Mongolia, Xinjiang, Henan and other regions; in the field of financial credit, the company has cooperated with Tencent to develop risk control products Yunlin to enhance banks' risk control ability in the financing business of small and medium-sized enterprises. In the field of investment and financing, the company's investment and financing business management system and other products have been highly recognized in the investment and financing business projects of Wuliangye, New Hope Group and other companies. During the 20H1 period, with the industry advantages of software development and system integration, the company complies with the development trend of the financial technology industry, and further increases the business coverage and market share of the financial industry, and the industry status is expected to continue to improve.

Investment suggestion: from 2020 to 2022, the company is expected to achieve operating income of 9.903 billion yuan, 10.959 billion yuan and 12.407 billion yuan respectively, and net profit of 900 million yuan, 1.2 billion yuan and 1.46 billion yuan, corresponding to PE of 44x, 33x and 27x respectively, maintaining a "highly recommended" rating.

Risk tips: medical, financial and other market competition aggravates the risk; the risk of business promotion affected by the epidemic is not as expected; the risk of cooperation with Tencent and Huawei is not as expected; goodwill impairment risk.