Key investment points Zhongyuan Xiehe is a rapidly growing emerging genetic technology company that uses stem cell storage as a platform. The repository that the company has been operating for many years has become the company's core advantage: on the one hand, the company has a nationwide repository and a large amount of cellular resources, whether for its own research or clinical use, these cellular resources are a huge treasure for the company; on the other hand, years of operation in the field of stem cells have enabled the company to establish a strong professional image in the field of cells and genes, providing a good foundation for future mergers and acquisitions and business expansion. Future growth points are genetic testing and mergers and acquisitions. 1. The company's genetic testing programs, such as high risk of adult tumors and comprehensive immune assessment, are promoted through the Life Bank card and cooperation with major groups. It is expected that the fourth quarter of this year has already begun contributing revenue and profits, and will continue to develop rapidly next year; the Tianjin Medical Testing Center will soon be approved, and the genetic sequencing business will be launched next year. With the company's good relationship with maternal and child systems and obstetrics and gynecology departments in Tianjin and other regions, the expansion is expected to be relatively rapid; 2. Epitaxial expansion is one of the company's strategies. It has been announced that an industrial fund of 5 billion yuan has been set up, of which the company has invested 1 billion yuan. We expect that to achieve the company's equity incentive exercise goals (2014-2016 revenue growth of no less than 30%/30%/50%, EPS not less than 0.10/0.30/0.80 yuan), the company will have to accelerate large-scale mergers and acquisitions next year. Currently, industries such as cell therapy and genetic testing are in a stage of rapid development in China, yet none of these industries have integrated in the country. In terms of policy, the Health Planning Commission will definitely supervise these industries, and the industry will be reshuffled. With its capital strength and listing platform, the company is most likely to become an integrated platform. There will be more catalysts next year. 1. The company's self-developed umbilical cord mesenchymal stem cell anti-hepatic fibrosis injection submitted a clinical application in August last year. Considering that stem cells are the country's 12th Five-Year Plan priority, if they can be clinically approved next year, it will be a major catalyst for stock prices; 2. The Health Planning Commission's stem cell regulation policy is expected to be introduced next year. A draft for comments was published in March of this year, and there is a high probability that it will be issued next year. It will mean that stem cell therapy will begin to be applied again under regulation, and the industry will resume normal development, which is beneficial to various companies. We expect that when the stem cell policy is clear, the company will also officially launch stem cell treatment business, extending from storage and cultivation to downstream treatment. 3. Mergers and acquisitions will also form a catalytic factor. Our views on company valuations. According to the fixed increase in share capital, we expect non-EPS deductions from 2014 to 2016 to be 0.10/0.38/0.81 yuan respectively. The current valuation is not low. The company is about to enter a number of promising emerging industries and is facing significant performance inflection points. There are many catalysts in the coming year, so it should enjoy a high valuation. As to how reasonable the valuation is, we believe that in the stage of rapid growth, catalytic factors will influence the stock price trend more than valuation. The company's current market value (share capital after a fixed increase) is 15 billion yuan. Considering that Huada Medical already has a valuation of 100 times during the PE financing stage, with a market value of 10 billion yuan, and that the company is currently a relatively scarce stem cell and gene concept stock, the market value of 15 billion yuan is relatively small, so we give it a “recommended” rating. Risk warning: 1. If the company fails to complete the merger and acquisition of Shanghai Zhicheng Biotech by the end of this year, it may be difficult to meet next year's exercise requirements; 2. The timing and scale of the merger is difficult to predict; 3. There is uncertainty about whether the umbilical cord mesenchymal stem cell anti-hepatic fibrosis injection can be clinically approved and when; 4. The Health Planning Commission's stem cell-related policies are uncertain.