Key investment points: Medical services are the most important business sector for performance. Suqian Hospital is growing steadily, and Yizheng Hospital is on the fast track. In 2014, the previous year's medical service revenue was 256 million yuan (+15.48%), and gross margin increased by 5.85 percentage points. 1. Suqian Hospital has entered a period of stable performance: half-year revenue and net profit were 337 million (+12.75%) and 46 million (+7.14%), and the net profit margin was also relatively stable at 12.19%; the annual revenue growth rate is expected to be 14%. 2. The growth of Yizheng Hospital is accelerating, and the revenue scale and net profit margin are expected to increase further: half-year revenue, net profit of 113 million (+16.10%), 05 billion (+60.41%), net profit margin of 4.36%. If depreciation and goodwill amortization are taken into account, the net profit margin of Yizheng Hospital is expected to reach more than 6%, but compared to Suqian Hospital and the industry average, there is still plenty of room for growth in the net profit margin after further standardization of development; because Yizheng Hospital is under pressure to control medical insurance fees as a second-level hospital, we expect the annual revenue growth rate to be slightly below 20% of the market Expectations. The medical services sector reached 891 million in 2013 (465 million after deducting hospital drug revenue), and is expected to exceed 1 billion dollars for the whole year (more than 539 million yuan excluding pharmaceuticals). It has already surpassed the revenue of the pharmaceutical industry at the parent company level, making it the business sector with the most important performance. The cooperation model with Nanjing Gulou Hospital is mature and has the potential to further strengthen medical services. In the process of cooperation with Gulou Hospital, the company acted as an exporter of capital and management technology respectively. It was the earliest case where a listed company on the capital market entered the medical service field, and it has already had a demonstration effect within the industry. Through the successful operation of the Suqian Hospital and Yizheng Hospital projects, Gulou Hospital has established a good brand effect in the surrounding area centered on Jiangsu. The good cooperation sample between the company and Gulou Hospital has strong replicability. In the future, through continuous intensive work in the field of medical services, it is expected to create an increasingly professional operating platform. Expectations of Xinkong Group's pharmaceutical asset injection have increased to resolve competition in the same industry among brother companies. In the context of state-owned enterprise reform, all 45.23% held by Jinling Group, the company's former direct controlling shareholder, was transferred free of charge to Xinkong Group, the former indirect controlling shareholder, to flatten the company's upper management structure, which is conducive to improving the company's execution and response speed. Pharmaceutical industry assets under Xinkong Group also include Zhongshan Pharmaceutical, Bai Jingyu Pharmaceutical, and Ed Ketten Biomedicine. They promise to resolve peer competition with companies: if profits are achieved within three years, priority but not limited to investing in Jinling Pharmaceutical or transferring them to unrelated third parties will be prioritized, but not limited to, investing them in Jinling Pharmaceutical or transferring them to unrelated third parties. 1. Zhongshan Pharmaceutical: Currently, the company holds 11.53% of the shares. As an important enterprise, five varieties, including active blood pain relief capsules, ciprofloxacin hydrochloride capsules, qijudihuang capsules, qijudihuang capsules, and motherwort granules, have been included in the national essential drug catalogue, and the performance has achieved a balance of profit and loss. 2. Bai Jingyu Pharmaceutical: Currently, the company holds 21.64% of the shares. As a chemical raw materials and pharmaceutical company, 26 products have entered the national basic drug catalogue, with revenue and net profit of 480 million and 20 million yuan in 2013. 3. Edkaten Biomedicine: It has three core businesses: biomedical R&D and R&D outsourcing, biological reagents and medical diagnosis, and professional incubation services, and is currently at a loss. If three pharmaceutical assets are injected in the future to resolve competition in the industry, it will enhance the company's performance and enhance the R&D capabilities of the company's pharmaceutical business. The pharmaceutical industry is growing steadily, and new dosage forms have helped Chylonine grow healthily. In the first half of 2014, pharmaceutical production and sales revenue was 1,032 billion yuan (including pharmaceutical business, +5.73%), and gross margin increased by 3.01 percentage points. Product-side analysis The Chinese medicine business decreased by 3.30% year on year, and gross margin increased by 6.75 percentage points; the chemical medicine business grew 10.68 percent, and gross margin increased 1.70 percentage points. The negative effects of the adverse effects of chylonine, which accounts for about 75% of the parent company's revenue, have achieved a steady recovery. In addition, the development of OTC oral formulations is expected to further help the growth rate of chelonine. The annual growth rate is expected to be about 10%. The second-tier variety shiitake mushroom polysaccharide is expected to grow at a rate of 20% throughout the year; Sudafi is expected to achieve revenue of nearly 100 million yuan within the year after the price increase. The profit level of the pharmaceutical business sector needs to be further increased. The company's sales platform includes Huadong Pharmaceutical, a subsidiary pharmaceutical business platform, in addition to the sales team built by the parent company itself. Huadong Pharmaceutical's revenue for the first half of 2014 was 855 million yuan (+6.19%), but the net profit was still the same as in the same period last year. Under the current trend of pharmaceutical business integration and adjustment, Huadong Pharmaceutical's profit level needs to be further increased. Profit forecast: From a medium- to long-term perspective, we believe that the pharmaceutical business underpins the company's performance, and medical services are the icing on the cake of the company's development. We expect the EPS for 14-16 to be 0.43 yuan, 0.50 yuan, and 0.59 yuan, and the corresponding price-earnings ratio is 32 times, 27 times, and 23 times, maintaining an increase in holdings rating. Risk warning: The growth of the Chinese medicine business is weak; the development of medical services falls short of expectations.