The company is no longer a simple cord blood storage cell, but also integrates elements such as cord blood storage, gene sequencing, cell therapy, and personalized medicine. We have seen that in 2014, the company acquired 100% of Zhicheng Biotech's shares, operated the Nanjing and Gansu Cell Genetic Banks, acquired 33% shares in Xiehe Stem Cell Genetic Engineering, established Guangdong Shunde Zhongyuan Xiehe Gene Technology Co., Ltd., established Zhongyuan Xiehe Tianjin Medical Laboratory Co., Ltd., set up a merger and acquisition fund, and acquired a 13% stake in Beike Biotech. We have reason to believe that in 2015 the company will go further and further on the path of outreach. 1. Industry conditions. Cell therapy research is booming. The State Council has established the biological industry as a strategic emerging industry, and the development of cell therapy has been mentioned among key areas. Cell therapy is a treatment method that transports (or implants) the human body itself or other somatic cells or stem cells into the human body after being manipulated in vitro. It mainly includes stem cell therapy and immune cell therapy. In recent years, cell therapy has shown increasing application value in treating diseases such as genetic diseases, cancer, tissue damage, and diabetes. On January 23, 2009, Obama rescinded an executive order issued by Bush restricting embryonic stem cell research. Until now, cell therapy in various countries is in the phase of active research, experiments, and clinical observation. The stem cell industry is estimated to reach a $400 billion market by 2020. According to the stem cell industry report “StemCell Research MarketTo2017-GBIResearch 2011,” the global stem cell application market was 330 million US dollars in 2001, 1 billion US dollars in 2004, and close to 2 billion US dollars in 2007, with an average annual growth rate of 34%. According to the 2010 Stem Cell Yearbook, the global stem cell market is expected to reach 400 billion US dollars within the next 20 years. International perspective: Stem cells have shown great potential in the field of regenerative medicine. The policy orientations of countries in major regions tend to accelerate the liberalization of stem cell research. Stem cell therapy treats diseases at the cellular level. The main fields of clinical application are cardiovascular diseases, neurological diseases, blood diseases, liver diseases, kidney diseases, diabetes, and bone and joint diseases. The application of bone marrow transplantation to treat malignant blood diseases such as leukemia is a mature application in this field. Major pharmaceutical companies are all very interested in the field of stem cell therapy, and the degree of participation in the layout has increased. Once the market is liberalized, along with breakthroughs in the field of treatment, the market prospects are promising. Up to now, eight types of stem cell drugs have been approved worldwide, probably because currently most stem cell treatments are individualized medicine, and there is no standardization, so sales conditions are average. Domestic vision: Looking at the domestic stem cell industry chain, the application of stem cell technology is mainly in the three major market segments of umbilical cord blood banks, new drug screening, and cell therapy. Currently, the cord blood storage business is one of the most mature and most important industrialization projects, yet the screening of new drugs and cell therapy are limited by safety and have not yet been industrialized. Cord blood is currently a high-profile source of stem cells. The Ministry of Health approved the establishment of 7 cord blood banks in 2001, and 3 more in 2002. Currently, cord blood storage is only the initial stage of the stem cell industry. Future industrial development projects mainly include genetic diagnostic reagents, gene drugs, stem cell products, and stem cell transplantation. Related companies: Zhongyuan Xiehe, Jinwei Healthcare, Beike Biotech. 2. Company fundamentals: The company's short-term operations are based on stem cell storage business and medical test reagent business. Stem cell storage business: In 2013, the company's stem cell storage reached more than 300,000 copies, adding nearly 30,000 copies each year. Stem cell banks have public bank licenses in Tianjin and Zhejiang, and have built their own banks in the form of subsidiaries (self-banks are subject to relatively relaxed supervision). Over the past few years, the company has been in the layout stage. The company has 29 subsidiaries spread across 21 provinces and cities, covering two-thirds of China's territory and three-quarters of the population, making it the most comprehensive stem cell operation network in the country. Medical testing reagent business: Currently, the company uses existing channels to test and analyze genetic information on neonatal stem cells to further increase the value of stem cell storage and enhance the potential for clinical application of stem cells. Genetic sequence studies affecting 37 types of tumors and 150 common non-tumor diseases have been carried out, and development of genetic tests for adult cancer risk assessment and customized chips for risk prediction of common diseases in adults has begun. At the same time, whole genome analysis technology for oral mucosa has also been carried out, and preparations for projects and sampling techniques have been completed for expanding the genetic business beyond newborns. The acquisition of Zhicheng Biotech will achieve market interoperability between North and South. In the future, the direction of genetic testing will continue to expand, with prenatal testing, Down's screening, etc., to achieve a dual-core drive of stem cell+genetic testing. Develop the cosmetics, beauty and health products business and cell formulation business in the medium term. Beauty and health products business: The company actively invests in the development of beauty and skin care products. Four categories, including the Ruier series, the mask series, the Diana series, and the Europa Legends series, have completed R&D and put into production, and put the products into sales channels. Among them, the Ruier series has also upgraded the products based on market information feedback. The R&D stage has come to an end, and the upgraded products will soon be put into production; the hand cream and foot cream series and the herbal care series have completed research and development and will soon be put into production; 3 product lines, including the maternity series, hand mask and foot mask series, and moisturizing and care products, have entered the middle and late stages of development; men's series and mask series (various body care categories)) Complete R&D project approval. Combining its own technical advantages and characteristics, the company is actively preparing for the application of human cytokines as raw materials for cosmetics. (Business development during the reporting period disclosed in the 2013 annual report) Cell formulation business: Stem cell drugs developed by Tianjin Heze Stem Cell Technology Co., Ltd., a subsidiary of the company, have made significant progress. On July 27, 2012, the umbilical cord mesenchymal stem cell anti-hepatic fibrosis injection developed by Tianjin Heze Biotech Company was registered as a drug by the Tianjin Food and Drug Administration (acceptance number: CXSL1200056). The subsidiary company Beijing Sanli Heze Biotechnology Co., Ltd. and the Institute of Radiation and Radiation Medicine of the Academy of Military Medical Sciences of the Chinese People's Liberation Army have jointly developed and declared a new anti-thrombotic drug, a recombinant novel virucine (yeast) drug registration application for injection, was accepted by the China Food and Drug Administration in August 2013 (acceptance number: CXSL1300060), and passed on-site inspection in September 2013. Long-term development of medical business and pharmaceutical business. The medical business includes the acquisition of specialist hospitals, and the pharmaceutical industry includes chemical drugs such as stem cell drugs, gene drugs, and anti-tumor drugs. The company officially launched the “Life Bank Card” to the public in the second half of 2014. It covers cell storage, genetic testing and data storage, immune cell therapy, gene therapy, and cosmetic anti-aging, and personalized one-stop high-tech cell medical solutions. Based on the personalized characteristics of cell therapy, we believe that the company may acquire some hospitals as offline service outlets. Stock price catalysts — policy level. Three management systems for stem cells are expected to be introduced. The “Stem Cell Clinical Trial Research Management Measures (Trial)”, “Stem Cell Clinical Trial Research Base Management Measures (Trial)”, and “Stem Cell Clinical Trial Research Base Management Measures (Trial)”, and “Stem Cell Formulation Quality Control and Preclinical Research Guidelines (Trial)” issued in March 2013 are expected to release official documents in 2015, which will benefit industry leaders at that time. We are optimistic about the commercialization prospects of the company's stem cell products. Stock price catalysts — progress in mergers and acquisitions. The Seventh Extraordinary General Meeting of Shareholders of the Company in 2014 deliberated and passed the “Proposal on Establishing M&A Funds”, which agreed that the company and its subsidiaries such as Beijing Zhongyuan Xiehe Investment Management Co., Ltd. should raise no more than 1 billion yuan of capital and participate in initiating the establishment of multiple M&A funds. The total size of M&A funds is 5 billion yuan. On February 6, 2015, the company announced that it plans to invest 200 million yuan as an intermediate-level limited partner, Jiaxing Hui Ling Yinhong (investment of 5 million yuan), China People's Investment (investment of 400 million yuan), and Yongtai Tianhua (investment of 100 million yuan) to jointly establish the Jiaxing Zhongyuan Xiehe Equity Investment Fund partnership. We believe that the establishment of an industrial fund is mainly to seek investment and mergers and acquisitions projects of strategic significance to the company at home and abroad, and accelerate the pace of development in an extended manner. After the establishment of a self-raised 1 billion merger and acquisition fund, we are optimistic that participants such as China Democratic Investment and others will join, and the extension can be expected. Give it an “increase in holdings” rating, with a target price of 55 yuan. The 2014-2016 EPS is expected to be 0.10 yuan, 0.30 yuan, and 0.80 yuan, which is optimistic about the company's strategic layout in the field of cells and genes, and more optimistic about the progress of the company's M&A fund after establishment. Since we are optimistic that hot topics such as cell therapy and gene sequencing will continue to be interpreted, the dynamic PE of comparable companies in the industry in 2016 is about 48 times, giving the company a valuation premium. The target price is 55 yuan. Compared with the 2016 69X PE, the “increase in holdings” rating for the first time. Uncertainty factor. (1) Competition for stem cell storage in various regions; (2) Time for new drugs to obtain clinical approval.