Incident: The company announced on the evening of July 9 that Peking University Pharmaceutical, Peking University Medical School, Peking University Cancer Hospital, Peking University Medical Industry Fund, and Xin'an Medical signed a strategic cooperation framework agreement on the 9th to jointly establish Peking University Medical Oncology Hospital Management Co., Ltd. to establish the largest oncology specialist medical network in China under the “Peking University Oncology” brand. Comment: 1. Using oncology as a breakthrough, we officially entered the field of medical services. The company announced its future development strategy in the 2013 annual report published in April this year: “In addition to building a pharmaceutical industry chain and promoting resource integration, it also plans to rely on shareholder resources to lay out the medical service industry; especially in the medical service industry, to achieve a layout in medical services such as medical devices and hospitals; hospitals built and acquired by the company's shareholders will gradually be integrated with the company's existing business to enhance collaboration with the company's existing pharmaceutical business.” On June 18 of this year, the company announced that it plans to issue shares to buy 100% of Shenzhen Integrated Healthcare's shares (estimated value of about 1.4 billion yuan). The core business of Shenzhen Integrated Healthcare is cancer treatment services. It mainly invests in large-scale medical equipment and technical services to obtain investment shares in cooperation with hospitals to build oncology treatment departments. Currently, it has established a cooperative sharing business model with more than 20 hospitals; the acquisition of Integrated Healthcare marks the company's layout of the oncology services industry chain. The investment to establish Peking University Medical Oncology Hospital Management Co., Ltd. will take Beijing-Tianjin-Hebei as the core, the regional market currently effectively covered by Peking University Oncology, and the extension of Peking University Oncology's partner hospitals nationwide, manage oncology specialist hospitals nationwide, develop a chain of oncology medical services, and establish the largest oncology specialist medical network in China under the “Peking University Oncology” brand. The company is gradually accumulating more resources in the field of oncology on the basis of existing oncology drug manufacturing and sales. Through the construction of terminal hospitals, Peking University Pharmaceutical officially entered the field of hospital management, gradually reserved its ability to operate and manage hospitals, and began to officially expand up and down the oncology specialty treatment industry. 2. The Group's industrial layout ideas from medicine to medicine are clear. Peking University Medical Industry Group Co., Ltd. and its wholly-owned subsidiaries hold shares accounting for more than 40.2% of the company's total share capital. Peking University Fangzheng Group is the holding parent company of the Peking University Medical Industry Group, and the actual controller is Peking University. In May 2013, Peking University Medical Department and Fangzheng Group signed a strategic cooperation agreement. Peking University Medical Department provided support for Fangzheng Group in all aspects of discipline construction, talent introduction and training, academic exchange, and medical business management. Previously, Peking University Medical School owned eight affiliated hospitals (all top three hospitals), including Peking University People's Hospital, Beijing Medical University First Hospital, Third Hospital, Sixth Hospital, Dental Hospital, and Cancer Hospital (all top three hospitals). Peking University International Hospital changed its name to “Peking University International Hospital” and became the ninth affiliated hospital of Peking University Medical School; the medical industry group under Fangzheng Group changed its name “Hokkaido University Aspects such as “Medical Industry Group” and Southwest Synthesis's name change to “Peking University Pharmaceutical” all show the Peking University Fangzheng Group's approach to medical industry integration, which is to gradually build a pharmaceutical/medical industry chain integrating drug development/production/sales, and medical services in general hospitals/specialist hospitals. In addition to the top three hospitals in Beijing, the Peking University Medical Industry Group has gradually expanded nationwide as a sign of the acquisition of Hunan Zhuzhou Kaide Cardiovascular Hospital (the only cardiovascular specialist hospital in Hunan Province with the qualification of a tertiary hospital). On February 27, 2014, Peking University Medical Industry Group announced the co-establishment of Peking University Psychological Hospital (for-profit hospital) with Peking University Medical School and Peking University Sixth Hospital; in early March 2014, the strategic agreement reached with the Guiyang Municipal Government involved 3 billion yuan, including cooperation with Guiyang Second People's Hospital and Guiyang Fourth People's Hospital, while also following the Peking University International Hospital model, and will build a new for-profit hospital. These initiatives suggest that Peking University Healthcare will continue to develop in the field of medical services in the new year. The establishment of Peking University Medical Oncology Hospital Management Co., Ltd. this time is the expansion of the medical service field carried out by the company based on cancer hospitals under Peking University Medical School. As the only listed pharmaceutical company under Fangzheng Group, Peking University Pharmaceutical will rely on the gradual integration of the Group's pharmaceutical assets in the future, so the development space is worth looking forward to. 3. Profit forecast and rating. Evaluating only the company's existing product business, the company's net profit growth rates in 2014-2016 are expected to be 23.6%, 22.2%, and 20.9%, respectively; EPS is 0.16, 0.20, and 0.24 yuan respectively; the current stock price corresponding to PE is 104, 85, and 71 times; although the current valuation of the company is high, it is optimistic about the company's long-term development, giving the company an “increase in holdings” rating. 4. Risk warning: 1) Drug safety risks; 2) Medical service industry layout progress is lower than expected risk.