Investment points 1. The incident company released its 2016 annual report and achieved operating income of 3.687 billion yuan, an increase of 11.64% over the previous year. Net profit attributable to the parent company was 385 million yuan, an increase of 103.22% over the previous year. Non-net profit attributable to the parent company was 368 million yuan, an increase of 114.74% over the previous year. At the same time, the company announced its 2017 quarterly report, achieving revenue of 931 million yuan, an increase of 26.37% over the previous year. Net profit attributable to the parent company was 101 million yuan, an increase of 22.27% over the previous year. Non-net profit attributable to the parent company was 93.35 million yuan, an increase of 17.88% over the previous year. 2. Our view: 1. Performance is in line with expectations, medical services have doubled, and the number of beds has exceeded 1,000. The pharmaceutical industry has achieved steady growth, with sales increasing faster than revenue. The company actively lays out oncology medical services, which are progressing rapidly. In 2016, it achieved revenue of 496 million yuan, an increase of 98.03% over the previous year. The company currently has 3 hospitals including Guannan Hospital, Chaoyang Hospital, and Bijie Hospital, 27 cancer treatment centers including Shanghai Hongfei, Nanjing Ruike, and Shanghai Huayi, and 6 doctor groups including Guizhou, Anhui, Tianjin, and Hunan. Currently, the total number of beds in private hospitals controlled by the company is 1,380. We estimate that the medical services sector contributed around 70 million in net profit, including 30 million for Guannan County Hospital, 15 million for Shanghai Hongfei, and 25 million for Chaoyang Hospital (53% equity). At present, the company's medical services are still developing at an accelerated pace. The revenue for the first quarter of 2017 increased 26.37% year on year. We estimate that the growth in medical services is still above 100%. The company's pharmaceutical industry sector achieved revenue of 3.188 billion yuan, an increase of 4.47% over the previous year, and achieved relatively steady growth, mainly because the price of the company's products fell to a certain extent, which affected revenue growth. In terms of sales volume, Eddy's increased 13.05% year over year, Lobab increased 52.90% year on year, compound canthane increased 19.41% year on year, Ginkgo biloba increased 21.65% year on year, Qi Activation increased 173.43% year on year, and Heart Connect increased 22.82% year on year, all of which achieved relatively good sales growth. The new medical insurance catalogue was adjusted in 2017, and the company's strong new types of cancer lines and cardiovascular lines were added to medical insurance. The new varieties and old varieties formed resonant benefits, which is expected to drive the pharmaceutical sector to quickly achieve a second high growth rate. 2. The internal fee control effect is remarkable, and the cost side is effectively controlled. The sales expense ratio decreased by 12.09pp year on year. In 2016, the company's cost side was effectively controlled, with a sales rate of 49.82%, a year-on-year decrease of 12.09pp. The management fee rate was 10.51%, up 1.05pp from the previous year. The financial rate is 1.61%, and is expected to remain the same year over year. Judging from the 2017 quarterly report, the sales fee rate continued to decline, falling to 46.53%. Management expenses continued to fall to 9.54%. The company's internal fee control effect is remarkable. 3. The new medical insurance catalogue was adjusted in 2017, and the pharmaceutical side is expected to grow at a second rate. The 17-year medical insurance catalogue covered a total of 7 of the company's products, of which 3 were already expanded, and 4 new medical insurance products were introduced. We believe that the impact of this medical insurance catalogue adjustment on the company has exceeded market expectations. Among them, we are optimistic about the future sales performance of Lovoplatin, Ai Yu, Qi Rejuvenation, Eddy, and Polyphylloxactyly. The current sales volume of these varieties exceeds 2 billion yuan, and the future increase is more than 2 billion yuan. We are particularly optimistic that new and old varieties with strong tumor lines and cardiovascular lines are expected to form resonance benefits and achieve rapid release. 4. The medical service sector has accelerated its layout, and the national distribution map has gradually become clear. Since transforming oncology services, the company has successively established a number of hospitals and treatment centers. It has already deployed in Northeast China, North China, Southeast China, Southwest China, South China, etc., and the layout of medical services has gradually become clear. 2017 will be a harvest year for many projects. 3. Investment recommendations The company's medical services are being implemented at an accelerated pace, the pharmaceutical industry has rebounded, executives have increased their holdings many times, and future development is strong. We expect the company's net profit for 2017-2019 to be 501 million, 634 million, and 779 million yuan, corresponding to EPS of 0.63, 0.80, and 0.98 yuan, and corresponding PE of 26X, 20X, and 16X, maintaining an increase in holdings rating. 4. Risks suggest that hospital business expansion falls short of expectations; drug bidding price cuts exceed expectations.