Investment Summary

In 18H1, the company realized revenue/profit attributable to shareholders growth of 27.88%/21% yoy. In future, the company will increase investment in smart city pharmacy and build an complete mobile healthcare system involving online and off-line medical institutions and patients, which is expected to continuously promote TCM decoction pieces sales. Meanwhile, the distribution business of medical instruments will keep notable growth given intensifying sales channel. We predict the 18E/19E EPS to be RMB1.04/1.24 and adjust TP to RMB25.97, “Buy” rating. (Closing price at 24 Sep 2018)

Business Overview

18H1 Results. The company achieved revenue/ profit attributable to shareholders/attributable profit excluding non-recurring items of RMB16,959mn /2,604.6mn /2,581.96mn, implying yoy growth of 27.88%/21%/20.3%, respectively. We see financial costs dramatically increased by 68.5% due to rising interest expenses for bank loan and bonds. Selling expenses rose given selling expenses to revenue ratio up from 2.35% in 17H1 to 2.92% in 18H1, while administration fees to revenue ratio dropped by 0.46ppt to 3.94% due to improving management efficiency.