Main points of investment:

Announcement.

The company realized income, return net profit and deducted non-return net profit of 34.21,11.19 and 1.023 billion yuan in the first half of 2020, up 36.74%, 109.86% and 100.07% respectively over the same period last year, and the net operating cash flow was 2.376 billion yuan, an increase of 1707.08% over the same period last year.

In the second quarter of 2020, income, return net profit and non-return net profit were 20.30,7.37 and 657 million yuan, up 56.08%, 156.91% and 141.07% respectively over the same period last year, and the net operating cash flow was 1.426 billion yuan, an increase of 468.74% over the same period last year.

The business performance is expected to increase from January to September 2020, and the estimated net profit is 13.55 to 1.426 billion yuan, an increase of 90.00% to 100.00% compared with the same period last year.

Comments.

The performance of conventional products returned, and the volume of anti-epidemic products continued. In the first half of 2020, under the influence of COVID-19 's epidemic situation, the company shipped a large number of anti-epidemic related products, the conventional products overcame the fluctuation of the business environment, steadily promoted the market expansion, and the business scale of the online platform increased significantly compared with the same period last year. the market response of the company's third-generation household medical devices is good, and the company leads the sales of oxygen machines, electronic sphygmomanometers, ventilators, blood glucose meters and test strips. The rapid expansion of the civil end business of the subsidiary disinfection sensor control products provides a strong driving force for the continuous improvement of the company's performance.

In the first half of 2020, the market share of the company's main products increased steadily, and the continuous volume of "Jiefu" series of popular hand-cut products achieved a good performance of more than 10% growth rate of the online plate. With years of channel accumulation, efficient response speed and first-class product quality, the company's export division will actively promote the construction of overseas independent brands, and the scale of export business will grow exponentially.

In the first half of 2020, relying on online and offline marketing, the sales scale of the company's main products such as oxygen making machine, electronic sphygmomanometer, blood glucose meter and test paper has reached the level of the same period last year. However, under the influence of the fluctuation of domestic economic life order, the business volume of products such as atomizers and wheelchairs still decreases in different proportions. At the same time, due to the extensive needs of epidemic prevention and control at home and abroad and the treatment of patients, the shipments of respiratory products such as non-invasive ventilators, infrared frontal temperature guns, oximeters and disinfection sense control products have increased greatly.

In the clinical section, the company's indwelling needle products were procured by governments both inside and outside the province, and the business scale increased by nearly 80% over the same period last year. Among the company's subsidiaries, the sales of surgical instruments in the core business were affected by abnormal medical activities. Shanghai Arms Group achieved business income of 285 million in the first half of the year, down 14.74% from the same period last year. As a major supplier of domestic professional disinfection sensor and control products for hospital use, with the rapid opening of the civilian market, Shanghai Zhongyou achieved operating income of 506 million in the first half of the year, an increase of 85.77% over the same period last year, and a net profit of 183 million, an increase of 155.46% over the same period last year.

Split up: in the first half of 2020, the income of medical clinical products was 756 million yuan, an increase of 29.22% over the same period last year, and the gross profit margin was 58.80%, an increase of 8.57 pp. the income of medical respiratory and oxygen supply products was 1.164 billion yuan, up 59.52% over the same period last year, with a gross profit margin of 66.13%, an increase of 19.57pp over the same period last year. The income of household medical products was 1.344 billion yuan, up 32.70% from the same period last year, and the gross profit margin was 54.70%, up 15.68 pp. the income from foreign trade products was 130 million yuan, down 16.38% from the same period last year, and the gross profit margin was 3.93% from the same period last year, reducing 0.38pp over the same period last year. We estimate that it is mainly due to the impact of the overseas epidemic; other business income is 28 million yuan, an increase of 44.03% over the same period last year.

According to financial analysis, the company's comprehensive gross profit margin in the first half of 2020 was 57.17%, an increase of 15.50pp over the same period last year. We estimate that it is mainly due to the increase in sales of disinfectants, ventilators, temperature guns and other products related to the epidemic. The sales expense rate was 11.68%, an increase of 2.30pp compared with the same period last year, mainly due to the increase in overtime pay, anti-epidemic incentives and business expansion during the first half of the epidemic. The management expense rate was 10.49% (including R & D expenses), an increase of 3.23pp over the same period last year, of which R & D expenditure was 182 million yuan, an increase of 218.55% over the same period last year, mainly due to the increase in product R & D investment, overtime pay to company management / R & D personnel, anti-epidemic incentives, depreciation and amortization of the new factory area; the financial expense rate was-0.42%, reducing 0.24pp over the same period last year.

The net operating cash flow in the first half of 2020 was 2.376 billion yuan, an increase of 1707.08% over the same period last year, mainly due to the increase in the proportion of the company's business using advance payment and cash delivery mode, and a substantial increase in sales rebate. Accounts receivable totaled 751 million yuan, down 22.92 percent from the end of last year. Accounts received in advance and contract liabilities increased by 454.61 percent over the end of last year. We believe that mainly due to the impact of the overseas epidemic, there are still some export orders that have not yet been delivered.

The net profit of 2020Q1-Q3 is expected to increase by 90-100%. The regular business of the company's online and offline sectors has been carried out smoothly, and the market demand suppressed by the epidemic has been further released in the third quarter, with a large increase in performance in the first half of the year and the remaining overseas orders are still being delivered gradually. therefore, the company's operating performance from January to September 2020 is expected.

R & D + epitaxial development. The company continues to increase investment in research and development, strengthen product improvement and new product development, and continue to enhance the competitiveness of products. Investment in R & D in the first half of 2020 was 182 million yuan, an increase of 218.55 percent over the same period last year. On the basis of each research center, the company will make full use of the strength of the R & D center of Danyanghe Yangxin production base, around the improvement of the technology of the original products and the expansion of the layout of new products, in order to increase the category of the company's products, improve product performance and reduce cost and increase efficiency as the goal, enhance the technical anti-risk ability, with an open vision, create "extreme" products. In 2020, the company will introduce products with channel synergy through cooperative research and development, technology introduction, mergers and acquisitions and other ways.

Online and offline coordinated operations, Yuyue brand strong rise. During the epidemic, the sales performance of the company's conventional products online platform increased significantly compared with the same period last year, and a number of medical device products led the sales of the whole network, reflecting the growth flexibility of Yuyue e-commerce business. it also reflects the national recognition of Yuyue brand and the strong rise of Yuyue brand. We believe that Yuyue's rise to become the first domestic household medical device brand is the logic of Yuyue's growth in the next 10 years. We estimate that Yuyue's brand is rising, and under the support of Yuyue's strong brand and channel, rapid growth can be achieved through self-research and extension of new products. We believe that Yuyue's own brand and channel can be bigger and stronger. The model of extension expansion of product line can realize the rapid "realization" of brand and channel, and the growth model is sustainable.

Maintain the "better than the market" rating. We estimate that the EPS for 20-22 years will be 1.42,1.32,1.55 yuan respectively. We have raised our profit forecast for 2020. With reference to the valuation of comparable companies, we give the company 35-40 times PE in 2020, corresponding to a reasonable value range of 49.62,56.71 yuan, maintaining a "better than the market" rating.