Company events: 1. Company announcement iHealth Inc., a newly established entity under the company, will introduce a strategic investment of 25 million US dollars from Xiaomi, and iHealth will become Xiaomi's partner in the field of mobile health. 2. The company announced that it will raise no more than 810 million yuan through a non-public offering of no more than 44 million shares at no less than 1,840 yuan/share, mainly for investment in mobile medical peripheral ecology and intelligent hardware research and development bases. Comment: 1. Invest in Xiaomi to build a mobile health cloud platform with an Internet mindset! (1) Leveraging Xiaomi to boost the domestic market. The company established iHealth Inc., a subsidiary company in Cayman. It introduced Xiaomi's investment of 25 million US dollars as a strategic investor. Xiaomi Investment will hold 20% of the new company's shares. Thereafter, Xiaomi will carry out in-depth cooperation with iHealth in terms of user experience, Xiaomi e-commerce, and cloud services to jointly build a mobile health cloud platform. We believe that iHealth has proven to have a strong competitive advantage and market acceptance in North America and other overseas markets (revenue of 10 million US dollars in 2013, and 2 million euros in the European market alone in the first half of 2014). After introducing Xiaomi, it will make full use of Xiaomi's advantages in Internet thinking and operation, e-commerce channels, user experience, etc., to further rapidly expand market share domestically and seize the opportunity to acquire users (previously the company has launched iHealth blood pressure monitors in JD partner countries). (2) Incentives are in place. Xiaomi holds 20% of the company's total share capital after investment; 10% of the total share capital is used as treasury stock for equity incentives for future employees, and 70% of the shares are held by Jiu'an Medical. This move paves the way for the introduction of outstanding talents in the future. (3) Exclusive commitments fully guarantee the quality of cooperation. Xiaomi Investment and its affiliates promise not to invest in projects or companies whose main business scope is the following products (“company competitors”) within two years after completion of delivery of this project: A. Medical platforms or products based on big health data or; B. Blood pressure and blood sugar measurement products with a single function of measuring blood pressure and blood sugar. We believe that the next two years will be an explosion period of Internet health care. Xiaomi's commitment fully demonstrates the determination and great confidence to cooperate with iHealth, which will facilitate high-quality cooperation between the two sides. 2. The fixed increase is no more than 810 million yuan to raise more than 810 million yuan and invest heavily in mobile healthcare. There is no second company in the market yet. (1) Maximum investment to achieve a second lead. The capital raised by the company will mainly be used for A. Mobile medical peripheral ecology and intelligent hardware research and development base (480 million yuan), B. product experience center (66.36 million yuan), C. customer service center construction (14.37 million yuan), and D. supplementary working capital (230 million yuan). We believe that this is currently the largest investment in the mobile medical field among domestic A-share listed companies. It will enable the company to take the lead again on the basis of its lead and greatly narrow the gap with its competitors. The company is the only mobile medical company in the A-share market that has fully penetrated the North American and European markets, and is also the only mobile medical company with “Silicon Valley genes.” (2) Determination to show a broad vision. We believe that the company's determination to invest heavily in mobile healthcare reflects the company's forward-looking and global vision. In the current context where capital in the primary market is rapidly heating up, and Internet medical companies such as Lilac Garden and Dr. Chunyu have successively received huge financing of 70 million US dollars and 50 million US dollars, Internet health care will enter a stage of intense competition and competition on the racetrack. If you miss the most critical layout period at present, you will probably lose the future mobile medical market.(3) Committed to investing in the “ecosystem surrounding mobile medical care”, the company apparently has an ecological model mindset and a closed-loop mindset. The company not only invests in intelligent hardware manufacturing, but is also committed to building an “ecosystem” and creating a closed loop, which shows that the company has an extremely deep understanding of mobile health care and realizes that it is difficult for a single link to fully drive the expansion of mobile medical services. Only by creating an ecosystem and creating a closed loop of integrated medical services is the only way to develop mobile medical care. 3. Looking at it from the top down, Jiu'an Medical is the company most in line with the best Internet medical business model. The company is an Internet medical enterprise that best meets the “Four Sentences of Truth” standard and has heavy vertical genes. In our in-depth industry report “Internet Healthcare: Enjoying the Industry Feast, Remembering the “Four Truths”, we proposed that humanity is the foundation of profit, that data determines the space for development, that the community brings traffic accumulation, and that the offline service chain is a barrier to competition. However, at present, we believe that Jiu'an Medical is the Internet medical company with the characteristics of “four truths”: (1) “Being humane is the foundation of profit,” and the mobile-connected blood pressure monitors and blood glucose meters launched by Jiu'an Medical are just what patients need. There are over 330 million hypertensive patients in China. Symptoms of high blood pressure mainly include headache, dizziness, dizziness, and bloating. Severe cases can manifest as shortness of breath, difficulty breathing, swelling, visual impairment, nausea, vomiting, and hemiplegia. Treatment for high blood pressure is very necessary for the elderly. Furthermore, there are currently over 114 million people with diabetes in our country. Diabetes can easily cause complications. The consequences are quite serious, including foot disease (foot gangrene, amputation), kidney disease (kidney failure, uremia), eye disease (blurred vision, blindness), and encephalopathy (cerebrovascular disease). Therefore, Jiu'an Medical focuses on medical-grade Internet medical hardware products, which are in line with the immediate need for humanity. (2) “Data determines development space”. Jiu'an Medical has begun to collect consumer data through hardware-app-cloud data, and has begun to actively cooperate with other players in the medical service value chain overseas (including Apple's Healthkit), and has also experimented with some commercial cooperation with insurance companies. Currently, the number of users of the company's mobile internet sphygmomanometers and other products has reached the level of hundreds of thousands. In the future, with the implementation of the company's Internet marketing ideas, the number of users is expected to grow on a large scale, in line with what we consider extremely important “data decisions” The principle of development space”. (3) “Community brings traffic accumulation”. Jiu'an Medical is actively constructing smart hardware usage scenarios. Currently, the company's smart watch products have been interconnected with WeChat. It is one of the first four companies connected to WeChat, and has a leading sense of community thinking. At the same time, the company has also been exploring community building and product definitions for medical-grade mobile internet hardware. This collaboration with Xiaomi will help the company to have a deeper understanding of community business and create a more sticky community business model. (4) “The integration of offline resources is a barrier to competition.” At present, Jiu'an Medical has begun to integrate resources in the offline medical service value chain: domestically, the company has tried to cooperate with Tianjin Santan Hospital to provide efficient management of 3,000 diabetic patients to Santan Hospital using the company's mobile blood glucose meter products. In the US, companies have now begun to cooperate with companies such as Care Innovation to jointly explore cooperation models with insurance companies. Furthermore, Intel-GE Care Innovations, a joint venture between the American Heart Association (American Heart Association), American Diabetes Association (American Diabetes Association), and GE-Intel? The company began strategic cooperation with the company in the first half of the year. We believe that the advance layout of the company's iHealth brand products overseas has brought a good start to the expansion of the company's profit model (the domestic Internet medical profit model based on commercial insurance has limited space, while the US model has huge space), and the company has begun to try to integrate offline resources at home and abroad, which is at the leading level among similar enterprises. This is also a concrete expression of the company's “heavy vertical model.” 4. How to understand short-term performance? We think investing more is the right choice. (1) First, the pressure on the company's short-term performance does not come from a decline in profitability, but rather from a continuous increase in investment.The company was unable to achieve profit during the full year of 2013 and the first half of 2014. We believe this was mainly due to the company's strategic marketing investment (partly reflected in gross profit margin), as well as increased R&D and market investment. However, in the early stages of cultivating the market and acquiring users, we believe that increasing investment is the most correct choice. (2) Furthermore, the short-term growth of the company's business in 2014 is still worth looking forward to. The new market space mainly comes from three aspects: the three major markets in the US, Europe, and China are gaining momentum simultaneously; e-commerce channels are adding the icing on the cake; and blood sugar meter products have begun to segment the global market of 20 billion US dollars. In 2013, iHealth products were mainly sold to the North American market, with sales volume reaching 10 million US dollars. In 2014, the company will focus on expanding into European and domestic markets. At present, the company has registered a French subsidiary and is fully responsible for the marketing of the company's iHealth series products in Europe. Preliminary estimates suggest that the company's sales in the European market will reach more than 5 million euros in 2014 (only in the first half of the year and 2 million euros). Aiming at the domestic market, the company has already tried online sales channels such as e-commerce platforms in 2013. In 2013, the sales volume of the company's traditional products on e-commerce platforms was about 70 million yuan. The exploration and experimentation of the company's traditional products in e-commerce channels also laid a good foundation for new iHealth products to enter the domestic market. The company began focusing on the sales of iHealth products in the domestic market in the second half of 2014. This strategic cooperation between the company and Xiaomi will greatly help the company's iHealth products quickly occupy a share in the domestic market. (3) Third, in terms of product structure, the company will pay attention to the promotion of mobile-connected blood glucose meter products. Compared to blood pressure monitors, blood sugar meter products have a business model similar to “razor+blade”. Once customers are acquired through hardware, continuous revenue can be generated through the sale of blood sugar test strips. The company currently sells iHealth blood glucose meters in North America for 29.95 US dollars, and test strips are priced at 1 US dollar/tablet, which is on par with competitors such as Johnson & Johnson and Roche. The company launched a new pluggable blood sugar meter with a mobile phone headphone interface in 2014, which is more convenient to carry and operate. At the same time, the company began experimenting with Internet thinking and operation, and plans to aggressively invade the blood sugar meter market by providing free hardware (profit through test paper fees, test strips of various brands cannot be used), thereby segmenting the global $20 billion blood sugar meter market. Compared with the company's current operating income of 400 million yuan, even if it accounts for less than 1% of the blood sugar meter market, the revenue level will double several times. 5. Brands and channels all have significant competitive advantages. (1) In terms of brands, the company has its own iHealth brand and has made full use of Apple to increase brand awareness and reputation, and reduce marketing costs. The company's iHealth series products are the world's first blood pressure monitor linked to Apple products, the world's first baby monitor connected to Apple products, the world's first Bluetooth blood sugar meter connected to Apple products, and the world's first security product linked to Apple products). In the process of cooperation with Apple, Apple has greatly helped the company expand its channel market in North America. The company has now successfully registered iHealth trademarks in three categories (software, medical devices, electronic products) in the US, Europe, Japan, South Korea, Hong Kong, Taiwan, etc. The registration of the domestic iHealth trademark will take time to resolve, but it will not affect the domestic sales of the company's products.(2) In terms of channel construction, first of all, the company has accumulated a lot of strong retail channel resources in overseas markets over the past few years, such as large retailers such as Bestbuy, Apple stores, and Target. New products expand into the market more rapidly than other competitors. At the same time, the company has also made breakthroughs in domestic e-commerce platforms. In 2013, e-commerce sales of the company's traditional products exceeded 70 million yuan, accounting for nearly 50% of domestic sales revenue. The company's sales growth rate on e-commerce platforms is expected to reach more than 50% in 2014. The current cooperation between the company and Xiaomi will make full use of Xiaomi's e-commerce channels, further enhancing the company's channel competitiveness. 6. From the perspective of investment in the secondary market, the company is a scarce variety in the A-share market and has a very Internet mindset. After receiving investment and strategic cooperation from Xiaomi this time, the company is expected to become a platform-based enterprise in the future. The company is currently the only listed company in the A-share market that has achieved large-scale sales of mobile health care products. At the same time, the business model of “hardware as entry, app as connection, and cloud health big data application” established by the company has begun to take shape. The company aims to become the “apple” of the future health sector and become a platform-based enterprise. We believe that the company is strategically in line with the general situation of the mobile Internet in the future. At the same time, the company plans to obtain customers on a large scale by providing blood sugar meter hardware free of charge. The model of obtaining revenue from subsequent test strips, value-added services, and platform big data applications is also in line with the Internet mindset. It is one of the few traditional hardware companies that can implement the Internet mindset. At the same time, the company pursues the ultimate in product design, and also pursues the “ultimate” thinking of the Internet, and has continuously won top awards in the product design industry such as the “IF Award” and the “Red Dot Award” (a total of 4 products received the Red Dot Award in 2013, and the company's 8 products won the IF Award at the same time in January 2014). In addition, the company has also performed well in terms of rapid iteration. Since 2011, the company has launched more than 10 products in 5 major categories at a rate of 2-3 new iHealth products per year. In terms of application (APP) development and cloud data storage and services, the corresponding versions are constantly being updated and iterated, and have basically achieved certain personal health service capabilities. 7. Investment advice: Jiu'an Medical is in the transition stage from the traditional medical industry to the Internet medical industry, and the company's value cannot be considered using general PE and PS valuation ideas. First, the company's gross margin level remains relatively stable, which shows that the company's existing products are highly competitive. However, the company's performance is currently in a break-even stage, mainly due to R&D expenses during the transition period (including Internet talent recruitment) and the trial and error costs of exploring new marketing models. We believe that these ostensibly “costly” parts should essentially be “capitalized.” Second, the company's main development space in the future is not in traditional business; focusing on the competitiveness of the company's mobile Internet products is the focus. Currently, the competitive advantage of the company's iHealth products is prominent. It is the first Chinese mobile Internet medical enterprise to achieve large-scale sales overseas and high brand awareness. The first-mover advantage is obvious. This time, it has also cooperated with Xiaomi, further increasing its competitive advantage. At the same time, the company complies with our “Four Sentences of Truth” screening principle. We are optimistic about the company's business development for a long time. If the company's strategy is implemented smoothly, by 2016, the core user base will exceed one million (and more overseas users) and even reach the level of 10 million. The potential revenue space for the company's non-hardware generation based on users can be increased by 1 billion, and the profit prospects are broad. Revenue growth in 2014-2016 is expected to be 25.38%, 46.69%, and 41.78%, respectively, and EPS is 0.03, 0.10, and 0.23, respectively. Give it a “Highly Recommended” rating.