Semi-annual report 2020: the company's operating income in the first half of 2020 was 2.256 billion yuan, an increase of 106% over the same period last year; the net profit belonging to shareholders of listed companies was 712 million yuan, up 536% from the same period last year; and the net profit attributable to shareholders of listed companies was 665 million yuan, up 554% from the same period last year.

The high growth in income in the first half of the year was mainly contributed by epidemic prevention supplies. From a business-by-business point of view, affected by the epidemic at home and abroad, the company's revenue from wound and bandaging care and combined packaging products decreased slightly in the first half of 2020, by 5% and 5% respectively compared with the same period last year, while the revenue from surgical / surgical products maintained the growth trend in previous years, up 12% from the same period last year. The income of infection protection products increased significantly, with a year-on-year growth rate of 3377%, and the proportion of income increased significantly from 3% in the first half of 2019 to 48%. The high income increase in the first half of the year was mainly contributed by epidemic prevention supplies.

With the increase of gross profit margin, the production advantage of the whole industry chain is gradually reflected. The gross profit margin of the company's medical device business in the first half of 2020 was 43%, an increase of 11pct over the same period last year. At present, the company has a number of production bases and international advanced production lines, adhere to the production mode covered by the whole industry chain, a high level of production automation, high-tech production benefits have been gradually released.

The proportion of domestic income has increased, and the income structure has been optimized. In the first half of 2020, the company achieved domestic operating income of 821 million yuan, an increase of 520% over the same period last year, accounting for 36% of operating income, and an increase in 24pct over the same period last year. As the largest exporter of medical dressings in China, about 90% of the company's revenue was sold to foreign markets before 2019. However, since 2020, the company's domestic market business has also developed one after another. at present, its products have covered Beijing 301 Hospital, China-Japan Friendship Hospital, Wuhan Union Hospital and many other hospitals and pharmacies nationwide, realizing the optimization of income structure.

Sign an agreement with Chinese medicine equipment to further open the domestic market. In March 2020, the company signed the Strategic Cooperation Framework Agreement with Sinopharm Devices, planning to jointly invest in the establishment of a joint venture company; in May, Sinopharmaceutical Group Ogilvy (Hubei) Medical Co., Ltd. was established, and the general manager is Cui Hui, one of the actual controllers of the company. At present, the two sides are actively promoting the specific implementation of the strategic cooperation agreement, while Ogilvy Medical has also become a major supplier of Chinese medicine equipment French mask project. We believe that the follow-up strategic cooperation agreement will further help Ogilvy to open up the domestic market.

Under construction of infection protection equipment production project, the products can be standard 3M Company and other international brands. In May 2020, the shareholders' meeting of the company examined and approved the motion on investing in the construction of Ogilvy Medical Disease Prevention and Prevention equipment production Base and setting up a wholly-owned subsidiary, and proposed to invest 1 billion yuan in the new disease prevention and prevention equipment production base, the introduction of the world's most advanced base material production equipment, and supporting customized automatic, intelligent finished product deep processing production line, to achieve infection protection products of the whole industry chain coverage. The main base material production equipment of the project adopts the most advanced production line in the world, so the quality of finished products can be directly calibrated to international well-known brands such as 3M Company, Honeywell International Inc and so on.

The epidemic situation expands the reserve demand for medical protective products. Take masks as an example. Before the epidemic, the demand for masks was seasonal, and it was only during influenza and dust prevention that they were widely used. However, after the epidemic, the awareness of domestic hospitals to wear masks and people's awareness of wearing masks in daily life has increased. As well as the continuous expansion of government reserves, mask reserves will become the norm in the future. Similarly, the importance of protective clothing, isolation clothing, surgical clothing and other protective equipment has suddenly increased after the epidemic, and the company expects the overall market demand to expand to 8-10 times that of the past. Ogilvy Healthcare has announced the investment in the sensory control project, and the data used in the relevant calculations of the investment project are pre-epidemic data, and even if the epidemic slows down, the domestic market is still growing, so there is a lot of room for the company to release its production capacity. we believe that the performance of Ogilvy Medical infection Protection will continue to be released in the second half of the year and 2021.

On the basis of medical product line, expand categories and develop consumer goods business. Female nursing and maternal and infant products have strict requirements for the quality of raw materials, asepsis and low sensitivity, which coincides with the medical device industry engaged in by the company. The company deeply ploughs medical textile products and medical non-woven products for more than 20 years, and has quality advantages in the field of high-end textile products and non-woven products. At present, the consumer goods business is operated by Ogilvy Life, a wholly-owned subsidiary, and has brands such as Shangmianji and an Zhi'ai. The products are sold in flagship stores on Tmall and JD.com.

The concentration of medical dressing industry is expected to be further improved, leading enterprises will continue to benefit. According to Freedonia data cited in the company's semi-annual report 2020, it is predicted that the global market for bandages and medical dressings will reach US $24.4 billion by 2020 and US $31.3 billion by 2025. At present, the market share of the leading companies in the domestic medical dressing market is low, and the industry concentration is expected to increase in the future, from which leading enterprises such as Ogilvy Medical will continue to benefit. We believe that the main reasons include: 1) higher barriers to industry entry, inferior enterprises will be eliminated; 2) domestic labor costs, transportation costs rise, industry profit margins are compressed, while Ogilvy Healthcare has the advantages of the whole industry chain and large-scale production, which can effectively control costs and occupy the market highlands. 3) with the development of the industry, the demand for new high-end dressings will continue to expand, and it is difficult for small and medium-sized enterprises to undertake a lot of manpower, material and financial resources needed for high-end product research and development and clinical trials.

The influence of domestic brands continues to expand. During the epidemic, the company's product quality was recognized by consumers and the country, and continued to expand the influence of the brand in the field of epidemic prevention: since the second quarter of 2020, the company's medical surgical masks and children's masks have entered the retail market such as drugstores one after another. and take the lead in the market to launch single-piece sterilized packaging of medical surgical masks, widely praised by the market During the two sessions in 2020, Chinese medicine masks can be used as special protective materials for members of the two sessions, and Ogilvy Healthcare, as a manufacturer, undertook most of the supply tasks; during the epidemic, Ogilvy Medical masks and other infection protection products were repeatedly shipped to France, Pakistan, Malaysia and other places as official foreign aid materials to support overseas anti-epidemic work.

Profit forecast and valuation. We are optimistic about the production advantages of the company's whole industry chain and the development of infection protection product line in the domestic market. We predict that the EPS from 2020 to 2022 will be 0.95,1.08 and 1.17 yuan respectively, giving the company 34-36 times PE valuation in 2020, corresponding to a reasonable value range of 32.3-34.2yuan, maintaining a "better than the market" rating.

Risk hint. The risk of macroeconomic fluctuation, the risk of exchange rate fluctuation, the risk of product innovation transformation, and the epidemic caused the international market to fall short of expectations.