Main points of investment:

In 2016, the operating income was 1.071 billion yuan, and the net profit was 92 million yuan, down 34.27% from the same period last year, which was lower than our expectation.

The company realized operating income of 1.071 billion yuan, down 2.92% from the same period last year, lower than the expected value of 1.175 billion yuan; net profit from the home was 92 million yuan, down 34.27% from the same period last year, lower than the expected value of 148 million yuan; and earnings per share was 0.25 yuan per share, down 32.43% from the same period last year, lower than the expected value of 0.39 yuan per share. The decline in operating income is mainly due to the decline in sales revenue of the Hangzhou Department Store, an important source of income for the company, compared with the same period last year. The decline in net profit is mainly due to: 1) the decline in the operating income of the department store industry compared with the same period last year; 2) the loss of commercial property in Hangzhou, an important associate of the company, resulting in a decline in investment income compared with the same period last year; 3) less government subsidies were received in the current period. The high expected value of the above financial indicators stems in part from the company's original plan to promote the transformation of medical services and expand the industrial chain with the help of the Cancer Center, but due to the lack of local government support, the site selection of Binjiang District of Zhejiang Xizi International Medical Center, which was originally expected to cooperate with Zhejiang Cancer Hospital, was not successful, and there was significant uncertainty in the cooperation with Zhejiang Cancer Hospital. In terms of cash flow, the net cash flow generated by operating activities increased by 72.72% over the same period, mainly due to the decrease in the actual purchase of goods and taxes paid in the current period compared with the same period last year; the net cash flow generated by investment activities decreased by 183.20% compared with the same period last year. This is mainly due to the decrease in the recovery of the top 100 real estate transactions in Hangzhou in the current period compared with the same period last year.

The main business is steady and steady, carefully promote medical and health care, and explore in-depth expansion of other areas of the large health industry. The company takes Hangzhou Department Store as the main source of income and profit, and independently manages Hangzhou Hotel and Hangzhou collectibles market. While ensuring the safe operation of the main business, the company actively explores the transformation direction of the health industry, continues to actively look for suitable medical land and low-cost buildings, and pays attention to other areas of large consumption except high-end medical services. including medical device industry, biomedical life science research services and so on. In addition, 20% of the company's shares in the International Health and Medical Management Center have all been funded by shareholders, and the preparatory work has been basically completed.

In the period of strategic transformation, we will continue to look for investment opportunities in large health industries. The company will expand based on the original commercial and retail industry: Hangzhou Hotels will grasp the after-market effect of the G20 Summit and broaden online and offline marketing channels; Hangzhou collectibles market will make full use of brand advantages and integrate online and offline cultural resources; Hangzhou Department Store will also continue to deepen cooperation with Yintai Department Store, the entrusted manager. And will continue to follow the big health, large consumer industries, combined with their own advantages to actively look for suitable investment opportunities, looking for large-scale and profitable projects suitable for their own, and explore new business models.

Downgrade earnings forecast, downgrade to "overweight". We downgrade the company's profit forecast for 2017, and expect revenue from 2019 to be 1.118 billion yuan, 1.22 billion yuan and 1.326 billion yuan respectively, corresponding to EPS 0.34 yuan (0.41 yuan), 0.40 yuan (0.39 yuan) and 0.44 yuan, respectively, and corresponding PE are 37x, 32x and 29x, respectively. The downgrade forecast is mainly due to the slow recovery of the department store industry and the change in the company's layout in the medical and health field, and the revenue of the medical industry is expected to be affected to some extent. As a result, we downgraded our earnings forecast and downgraded to "overweight".