Acquisition of professional skin line company Luqa, medical beauty track Xiti strength players: recently, the company wholly acquired domestic medical beauty professional company Luqa, successfully entered the medical beauty gold track. Lukai covers prescription drugs, medical devices and medical skin care products. Among them, Anyuxi, an important prescription drug for the treatment of varicose sclerosis, has a high-quality production process, which can improve the curative effect and reduce the incidence of complications. Recommended by a number of treatment guidelines at home and abroad Considering that the prevalence rate of superficial varicose veins of lower extremities in China is about 8.56%, we estimate that Anyuxi has a potential patient size of nearly 100 million, has a large market space, and is expected to be incorporated into the Xiliotuo sales network, resulting in a synergistic effect. In addition, Shidermei / Shikofu (topical gel for scar improvement and hyperplasia prevention) has a promising market. Shidermei is widely used in the prevention and treatment of stretch marks in Europe and the United States. Clinical trial (577 subjects) data showed that this product could reduce the occurrence of stretch marks by 70.2%, and the treatment effective rate was as high as 80%. Considering that there are nearly 1500 pregnant women in China every year, and the incidence of stretch marks is about 50% MUE 90%, we think that the market prospect of Shidemei is good. In addition, the company has set up a skin line independent business unit, the current team has nearly 200 people, is expected to expand to 400 by the end of this year, channel integration, while preparing for the listing of tirazumab in 2022. To sum up, Lu Kai has senior experience in the introduction of overseas high-quality medical and beauty products, and is expected to enrich existing skin pipelines, fill the gaps in medical and beauty products, improve channel network coverage, and enhance the ability to integrate resources upstream and downstream of skin lines. it is expected to become a new generation of performance growth driving force of the company, which can be expected in the future.

The innovative product pipeline continues to inject new ammunition and actively expand Kangzhe Health platform: the company continues to expand innovative pipelines and has made significant progress: 1) Plenity, a heavyweight management product, has been sold online in China through cross-border e-commerce model in January this year, and is expected to be approved and listed in China in 2023, and is expected to accelerate sales volume through hospitals, OTC and Internet platform channels, helping to promote the development of Kangzhe Health platform. 2) get the exclusive license for the development, registration and commercialization of Medac's two products in Greater China, I) Methotrexate, the indication for rheumatoid arthritis and other autoimmune diseases, is expected to become China's first subcutaneous pre-filled injection, ii) bladder instillation BCG vaccine, the indication for urothelial cancer, is the only BCG vaccine available for bladder treatment in many countries. 3) the exclusive right to develop and commercialize methylene blue MMX in Greater China, which is an innovative patented drug of Cosmo. In addition, "Kangze overseas flagship store" has officially settled in JD.com International, Youzan Mall, and will soon be stationed in Tmall International. At present, it has launched more than 50 products from four well-known European health brands, and it is expected that 300 products will be launched by the end of the year. The number of exclusive cooperative brands is expected to increase to 30. In the medium and long term, the company adopts the parallel development model of "e-commerce + distributor + new retail" and gradually enters the field of consumer goods to further build a new brand of "Kang Zhe Health".

Raise the target price to HK $19.80, buy rating: conservatively consider the pipeline value of 7 major innovative products, such as Plenity, diazepam nasal spray, cyclosporine, terazumab, tedostat, as well as the value of 7 generic drugs, and do not consider the value of Kangzhe Great Health and Lucai brand value for the time being, we raise the target price to HK $19.80 according to the PE valuation method, which is 48.0% higher than the current price, corresponding to 15 times earnings in 2021. Maintain the buy rating.