The company's performance continues to grow rapidly, in line with market expectations. as a leading enterprise in the field of orthopaedics in China, the company has established obvious first-mover advantages in trauma, spine and other fields. and in joint, minimally invasive surgery, dental and other tracks continue to deepen the layout, in addition, the company's new round of incentive program also reflects considerable confidence in performance growth. Considering the company's leading position in the orthopaedic field and the long-term development potential of the rich production line, the company adjusted its EPS forecast for 2021-2022 to 1.95max 2.49 yuan (the original EPS forecast for 2021-2022 was 1.84 EPS 2.30 yuan), and increased the EPS forecast for 2023 to 3.14 yuan, corresponding to the times of PE in 33-26-21, maintaining the "buy" rating.

The rapid growth of performance continues, in line with market expectations. In 2020, the company achieved operating income of 1.587 billion yuan, an increase of 26.21% over the same period last year. The net profit of returning home and deducting non-profit was 506 million yuan, an increase of 30.12% and 30.78% respectively over the same period last year. Under the background of the epidemic, the company's performance still achieved rapid growth, and its leading position was prominent.

The operating income of 2021Q1 was 375 million yuan, an increase of 62.84% over the same period last year, and the net profit of returning to the mother and deducting non-net profit was 1.31 million yuan, an increase of 46.39% and 80.43% respectively over the same period last year, which was mainly related to the low base and further significant growth in the main business of 2021Q1 in the same period last year. The company plans to pay a cash dividend of 8.00 yuan (including tax) for every 10 shares.

Based on orthopaedics, actively layout and innovate the production line of consumables. The company is a domestic leader in trauma and spine. In 2020, the company's operating income of trauma products was 981 million yuan, an increase of 23.06% over the same period last year, with a gross profit margin of 87.72% (+ 0.18Pct). The leading edge was further consolidated; the revenue of spinal products was 369 million, an increase of 39.31% over the same period last year, and gross profit margin was 89.76% (+ 0.44Pct), which has gradually become a new growth engine. The revenue of minimally invasive surgical products was 111 million yuan, an increase of 21.69% over the same period last year, and that of neurosurgical products was 38.129 million yuan, an increase of 10.64% over the same period last year. The company continues to consolidate its advantages in the field of trauma and spine, and continues to deepen its layout in the fields of joint, minimally invasive surgery and dentistry, with broad prospects for long-term development.

Investment in R & D continues, and equity incentives reflect growth confidence. During the reporting period, the company's R & D investment continued, and new product R & D efforts continued to increase. The R & D expenses for 2020 and 2021Q1 were respectively 1.28 billion yuan, an increase of 27.54% and 26.21% respectively over the same period last year. The company has obtained a total of 469 registration certificates, and there are 277 registration certificates in the process of application. The number of R & D personnel increased from 352 in 2019 to 416 by the end of 2020. In April 2021, the company announced a new incentive plan. The assessment index is that the growth rate of deducted non-profit in 2022-2024 is no less than that in 2021, which is no less than 24%, 55%, 95% (24%, 25%, 26%, compared with the same period last year). The scope of incentives is wider than the previous round, with the target of doubling the growth rate within three years, reflecting management's confidence in performance growth.

The expense rate is well controlled and the cash flow performance is excellent. The overall expense rate of the company in 2020 increased by 0.91% compared with the same period last year, of which the rates of sales, management, R & D and financial expenses were 1.39% higher than that of the same period last year. The overall expense rate of 2021Q1 decreased by 4.76% compared with the same period last year, of which the sales, management, R & D and financial expense rates were 2.19% respectively compared with the same period last year, and the overall expense rate was well controlled. In 2020, the operating net cash flow of the company was 556 million yuan, an increase of 28.09% over the same period last year. The operating net cash flow of the company was 52.7241 million yuan, an increase of 740.18% over the same period last year.

Risk factors: collection and bidding price reduction risk, distribution model risk, raw material supply risk.

Investment suggestion: the company is a leader in orthopedic high-value consumables in China, and is a leader in minimally invasive surgery and dentistry. The new round of incentive plan reflects the great confidence of the company's performance growth. Taking into account the company's leading position in the orthopaedic field and the long-term development potential of the rich production line, adjust the company's EPS forecast for 2021-2022 to 1.95max 2.49 yuan (the original 2021-2022 EPS forecast is 1.84 EPS 2.30 yuan), increase the 2023 EPS forecast value of 3.14 yuan, corresponding to the PE 33-26-21 times, give the company 38 times the 2021 PE, corresponding to the target price of 74.10 yuan, to maintain the "buy" rating.