Main points of investment

Recently, the company released a report for the third quarter of 2020 that the company's total income in the first three quarters was 1.11 billion yuan, an increase of 27.54 percent over the same period last year, the net profit of returning to the mother was 428 million yuan, up 24.81 percent over the same period last year, and 386 million yuan was deducted from the net profit of non-parent, an increase of 22.43 percent over the same period last year. Of this total, Q3 achieved 437 million yuan in revenue in the single quarter, up 33.76 percent over the same period last year; the net profit returned to the mother was 163 million yuan, up 20.85 percent over the same period last year; and the net profit from non-return was 156 million yuan, an increase of 25.90 percent over the same period last year.

Profit forecast and rating: the company is a domestic leading enterprise in the field of orthopaedics, with the largest number of registration certificates of three types of medical devices in domestic orthopaedic enterprises, and is one of the few enterprises in the industry with full product line coverage in the field of orthopaedic implant consumables. In the future, the company will be based on orthopaedics, actively expand the business of medical high-value consumables such as minimally invasive surgery, neurosurgery, dentistry and sports medicine, and create a high-value consumables platform company. The reform in the field of high-value medical consumables in China has been continuously promoted, and the pilot project of volume procurement and the implementation of the "two-vote system" of consumables in some provinces have had a far-reaching impact on the development of the high-value consumables industry. As a leading domestic enterprise, the company is expected to benefit from the two-vote system and collection policies in the future to continue to increase market share. We adjust our profit forecast for the company and estimate that the EPS of the company from 2020 to 2022 will be 1.44,1.83,2.30 yuan respectively, corresponding to the closing price on October 27, 2020, with a valuation of 64X, 50X and 40X respectively, maintaining a "prudent overweight" rating.

Risk tips: terminal sales are less than expected risk; risk related to centralized procurement of high-value consumables; R & D progress is not as expected; industry competition intensifies risk; valuation fluctuation risk.