Key points of investment:
Founded in 2010, Heren Technology is a medical IT specialty enterprise that started in military hospitals and has the advantage of rich experience in building electronic medical records. After 2018, the company successfully launched a hospital-wide integrated solution that satisfies the clinical path logic of very large hospitals as the core, and achieved rapid expansion after 2020. We expect that the success of the new system will enable the company to achieve rapid revenue and profit growth after 2021!
After 2018, the Health Insurance Administration's DRGs and other guidelines placed high demands on hospital informatization, yet the top three hospitals still had problems with many lines, mixed suppliers, and low internal interaction efficiency. According to CHIMA data, there are already large differences in penetration rates of various medical subsystems in China. Some of the top three hospitals still have situations where HIS and electronic medical records are provided separately by different manufacturers. Problems such as inconsistent interfaces and inability to obtain consensus on the advance under the huge number of emergency outpatient care requirements have occurred, affecting the efficiency of hospital operation.
A new generation of hospital-level integrated systems was successfully launched, effectively improving the operating efficiency of hospital customers, etc. 1) Since its establishment, the company's electronic medical record products were positioned as high-end, and EMR was designed according to the highest requirements of the original Ministry of Health's electronic medical record rating specification; 2) Based on the original advantages, the company launched a new hospital-level integrated system integrating HIS and EMR functions based on clinical path logic in 2016, and successfully implemented at the Zhejiang Provincial People's Hospital, a seed client. After operation, the hospital's medical quality, diagnosis and treatment level, and operation efficiency were improved accordingly.
The next generation of products can be quickly replicated after 2020! There was a high increase in orders throughout the year. 1) After bidding resumed in the second half of 2020, according to public information, the company's new system has successively won bids and started construction in 7 hospitals including Taizhou First People's Hospital, Jiaxing No. 2 Hospital, Jiangsu Provincial Hospital of Traditional Chinese Medicine, and Shanxi Yuncheng Central Hospital within half a year; 2) According to public tenders, the company's orders totaled 188 million yuan in 2019, rising to 417 million yuan in 2020, an increase of 121.8% over the previous year.
Under the high reuse rate, the delivery efficiency of integrated products has been greatly improved. 1) The new product achieves a relative separation of R&D and delivery, with high granularity, greatly reducing personalized development costs and improving delivery efficiency; 2) From the observation of existing implementation cases, the company's 10-million-level order project in 2018 took one year from signing the contract to delivery and launch operation, while the overall construction cycle of the new system project of the same size in the 2020 mid-year standard was only five months. New system orders for the second half of 2020 are expected to have revenue confirmed in 2021. 3) According to our estimates, after improving the efficiency of tens of million-level software orders, the overall implementation time will be shortened by 1/3, and after outsourcing is reduced by 1/5, the return of core R&D personnel will more than double, and the real net interest rate of the project will increase by nearly 10%.
Considering that Heren Technology 1) meets the informatization needs of large hospitals, next-generation integrated IT solutions for hospitals are rapidly promoted; 2) the cloud deployment of next-generation products is gradually being improved, and implementation costs are likely to decrease after 2021. We expect Heren Technology's revenue to be 448, 575, and 721 million yuan in 2020-2022, and the net profit of the mother in 2020-2022 is expected to be 4,351, 6675, and 94.67 million yuan. The short-term target market capitalization is 4.75 billion yuan (8.3 x 2021 PS). Covered and given a “buy” rating for the first time.
Core risk assumptions: insufficient customer demand in the downstream industry, increased risk of industry competition, etc.