Investment logic:

Divest loss-making assets and focus on pharmaceuticals, and performance reverses: the company has gradually divested its loss-making business since the sale of 46% stake in Zhongguancun software in June 2012, and sold 90% of Zhongguancun Construction, which has lost money for four consecutive years in 2014. In 2015, 391 million of China Science and Technology Xiaoyun sold its 100% stake to recover the funds, with a book value of 190 million. The investment income of this transaction was 201 million yuan, while the loss was reduced by nearly 4 million. In 2015, the company's investment income was 206 million, and the apparent performance was improved. The company is expected to usher in a performance inflection point in 2016.

A number of epitaxial mergers and acquisitions to create a pharmaceutical platform, set to increase the size of medicine to improve the big health layout (1) Huasu Pharmaceutical was formerly an experimental pharmaceutical factory affiliated to the Institute of Toxicology and Medicine of the Academy of military Medical Sciences (hereinafter referred to as: Academy of military Sciences). The company changed to Huasu Pharmaceutical after its acquisition in 1999, relying on the Academy of military Medical Sciences, it continues to launch new drugs, with 2 national first-class new drugs and 5 second-class new drugs. The products are concentrated in cardiovascular, neurological and OTC categories, such as Huasu tablets for oral ulcers, bisoprolol for reducing hypertension, and Fesele for carsickness. (2) in September 2013, the company cooperated with Huaxia Pharmaceutical Co., Ltd. to establish Shandong Huasu Pharmaceutical Co., Ltd., which accounts for 80% of the equity and buys Benidipine Hydrochloride tablets, Glipizide and other hypertension drugs at a consideration of 100 million yuan. Shandong Huasu 100 million revenue scale is expected to be consolidated in 16-17 years. In 2015, the company acquired the remaining 20% stake in Shandong Huasu. (3) in December 2015, the company acquired 78.82% of Duoduo Pharmaceutical for 310 million, with 143 approvals related to neuroanalgesia, gynaecology, and respiratory drugs. (4) on January 13, 2016, the company was approved by the Securities Regulatory Commission and proposed to raise no more than 710 million yuan, with a reserve price of 8.57 yuan per share. Gome Holdings, the controlling shareholder, promised to subscribe for 400 million yuan, with a lock-up period of 36 months, demonstrating its determination to transform and confidence in the future. In addition to repaying the loans, the increased funds are mainly used to increase the size of the pharmaceutical sector, such as building a drug metabolism platform with the Toxicology and Drug Research Institute of the Academy of military Sciences; (5) the company said that it is expected to raise funds again in the future. the extension cuts into in vitro diagnosis, specialty hospitals and the layout of the high-end pension industry with heavy services. By 2019, the scale of non-medical income that strives to achieve great health exceeds that of medical income.

The echelon layout of products is perfect, which helps the performance to grow steadily. 1) the three star products of Huasu Pharmaceutical's Bosu tablets, Huasu tablets and Fessele ensure the steady growth of the pharmaceutical business sector. Bosu 2015Q3's revenue is 127 million, accounting for 18.53% of the revenue, with a growth rate of more than 20%. Huasu tablet is a well-known leading brand for the treatment of oral ulcers, with a market share of 50%. Fesele is a new generation of motion sickness drug developed by the Academy of military Sciences, which takes effect quickly, safely and persistently, with a growth rate of 30%. 2) Huasu Yuchuang toothpaste and Benidipine Hydrochloride tablets are expected to lay a solid foundation for a second take-off; 3) the acquisition of Duoduo Pharmaceutical further enriches its varieties. The market prospect of neuropsychiatric tramadol series, gynecological Acanthopanax biochemical capsule and clindamycin phosphate vaginal gel is promising.

Join hands with the Academy of military Sciences to build a research and development platform, which is rich in research and reserve products. Research and development of Anemarrhena saponins B Ⅱ (for Alzheimer's disease) in cooperation with the Institute of radiation and radiation Medicine of the Academy of military Sciences; purchase of original military drugs from the Institute of Toxicology and Medicine of the Academy of military Sciences for the treatment of cyanide poisoning; cooperate with the Institute of Toxicology and Medicine of the Academy of military Sciences to build a drug metabolism platform and share isotope laboratories with the Academy of military Sciences, and in-depth cooperation to ensure research and development backed by the Academy of military Sciences The company is developing a wealth of products, including hydroxymorphine hydrochloride and its tablets for analgesia, paracetamol oxycodone tablets, β-adrenoceptor blockers metoprolol succinate and sustained-release tablets for the treatment of hypertension, angina pectoris and other cardiovascular diseases; January 29, the company declared on November 12, 2013, hydroxymorphine hydrochloride and tablets obtained clinical approval, the product has not yet been declared and produced in China, and the global market in 2014 is nearly 200 million US dollars.

Profit forecast: excluding the income from the divestiture of the remaining 1 billion of the company's assets, it is estimated that the corresponding EPS of the company from 2015 to 2017 is 0.24,0.11,0.16 yuan, and the corresponding share price PE is 36x, 77x and 54x, respectively. Considering the strong determination of the company's endogenesis and extension to focus on the big health industry, it is covered for the first time and given a "highly recommended" rating with a target price of 11 yuan.

Risk hint: the promotion of new products is not as expected, and the integration of Duoduo Pharmaceutical Industry is not as expected.