Results missed expectations

Leadman announced 1H16 results: revenue was Rmb257mn,down 14.15% YoY; net profit attributable to shareholders wasRmb35mn, down 27.51% YoY, or Rmb0.08 per share.

Trends to watch

Operating revenue fell YoY due to competition. Leadmanfocuses on biochemical reagents, where competition is pickingup. Sales channels have been adjusted accordingly. In 1H16,operating revenue fell 14.15% YoY and net profit declined27.51% YoY. Operating revenue from DiaSys totaled Rmb116mnin 1H16.

Active promotion of product line expansion.

Self-developed chemiluminiscence device sales have started, andthe business is becoming a new engine. In 1H16, a total of 25chemiluminiscence reagents were under development, and thechemiluminiscence device jointly developed with IDS has beencertified and is being promoted in tertiary hospitals.

Active external expansion strategy to expand newbusinesses. Looking ahead, Leadman will likely keep expandingits product line along diagnosis. It will also likely exploremolecular diagnosis by leveraging DiaSys's resources to developnew engines.

Earnings forecast

We lower 2016 and 2017 EPS forecasts by 41% to Rmb0.25（-32% YoY） and Rmb0.28 （+11% YoY）。

Valuation and recommendation

The stock is trading at 55x 2016e and 50x 2017e P/E. We lowerour TP by 15% to Rmb17. Maintain BUY.

Risks

Marketing adjustments and chemiluminiscence promotions