Investment suggestion
We upgraded Situang's credit rating to "outperform industry" and raised the target price by 27% to 14 yuan.
The company announced its results in 2019 and the first quarter of 2020, with revenue of 1.574 billion yuan in 2019, an increase of 21.6% over the same period last year, and net profit of 148 million yuan, an increase of 2.9% over the same period last year. The revenue in the first quarter of 2020 was 333 million yuan, up 10% from the same period last year, while the net profit of returning home was 22.13 million yuan, down 23.1% from the same period last year. The performance is basically in line with the scope of the company's performance forecast.
We are optimistic about the development prospect of Sichuanghui's innovative business after the landing of Dingzeng, and believe that under the favorable policy, the medical IT industry will continue to thrive, help the company's smart medical business, and at the same time reverse the decline of smart business through business coordination. The reasons are as follows:
The fixed increase will inject blood into the innovation business, and the equity incentive will agglomerate the development power of the company. The company completed a private offering on December 5, 2019, raising $573 million to invest in the development of innovative businesses such as the Internet of things traceability project, and our company is expected to seize the blue ocean market of traceability management of medical articles; the company released the draft equity incentive plan on December 16, which we believe not only binds the core team and enhances the cohesion of the company, but also gives positive goals for the future performance of the company.
Relevant policies drive the demand of the industry, and the prosperity of the medical IT industry continues. From 2018 to now, the state has issued various policies on electronic medical records, medical information interconnection and DRGS, which put forward clear requirements for the construction of medical information in hospitals at all levels. We believe that the favorable policy will bring about 50 billion yuan of market space to the industry as a whole.
The company's dual main business to explore business coordination, to achieve two-wheel drive. The company's smart medical business performed well in 2019, maintaining a rapid growth of 30%. Smart business is actively exploring the innovative application of RFID products in various fields, and we believe that smart business is expected to rebound in the future.
What is the biggest difference between us and the market? We are more optimistic about the prospects for its innovative business.
Potential catalyst: innovative business and new projects are progressing faster than expected.
Profit forecast and valuation
Keeping the profit forecast for 2020 basically unchanged, the revenue forecast for 2021 is 2.459 billion yuan, and the net profit forecast is 389 million yuan. Upgrade to outperform industry rating, and raise the target price by 27% to 14 yuan. Our target price is based on a price-to-earnings ratio of 45 times 2020 earnings, which is 16% upside from the current share price. The current share price corresponds to 39 times 2020 earnings and 27 times 2021 earnings.
Risk.
The epidemic led to the delay of income recognition, the landing of the fixed increase was lower than expected, and there was policy uncertainty.