Events:

Recently, the company announced the signing of the "Investment Framework Agreement", which intends to transfer 80% of the shares held by Zhejiang Nilmet Knitting and Garment Co., Ltd. (hereinafter referred to as "the transferor") in Ezhou No.2 Hospital.

Main points of investment:

The layout of medical services will be the next city. After the company invested 200 million yuan with Kunwu Jiuding to set up Jiuji Pharmaceutical Health Investment Management Center (the total size of the fund is 3 billion yuan), and acquired Hainan Boao Zhongzhong International Medical Anti-Aging Center, the company plans to transfer 80% of the equity of Ezhou second Hospital Co., Ltd. from Zhejiang Nilmet knitting and garments, and the company's medical service layout will be in the next city. The second Hospital of Ezhou is a Class A general hospital, which is being changed from a non-profit hospital to a for-profit hospital. The unaudited operating data of Ezhou No.2 Hospital in 2015 was 93.1512 million yuan in operating income and 19.7113 million yuan in untaxed profit.

It is determined that the valuation of the hospital is 16 times of the deducted non-net profit in 2015. the final valuation will be determined after a comprehensive audit of the Ezhou second Hospital, with a valuation of no more than 300 million yuan. The transferor promised that the hospital's net profit after tax from 2016 to 2018 would be 23 million yuan, 26.45 million yuan and 30.42 million yuan, respectively. At the same time, the company plans to increase the capital of the target hospital according to the proportion of 80:20 with the transferor, with a total capital increase of no more than RMB 150 million yuan and a company capital increase of no more than RMB 120 million yuan. In the future, the business premises of Ezhou No.2 Hospital will be moved to a comprehensive third-class hospital (1000 beds) under construction in the south of Ezhou. The new business site currently belongs to Ezhou Jiahe Medical Service, which began construction in 2015. Ezhou No.2 Hospital will purchase land for the new hospital project from Jiahe Medical Department and complete the whole construction after the project is under construction. Ezhou second Hospital is expected to upgrade from a comprehensive secondary hospital to a tertiary hospital. The company acquires a normally operated secondary hospital and buys a tertiary hospital project under construction to quickly upgrade the hospital, which shows the company's strong ability to integrate resources in the medical field, and looks forward to the further development of the company's medical service layout.

Actively lay out the field of hemodialysis and explore new growth points of performance. At present, the company has cooperated with three hospitals, each center is equipped with 20 instruments, with an investment of about 3 million yuan, and plans to invest 40 million yuan to set up 10 hemodialysis centers. At present, the mode of cooperation between the company and the hospital is mainly for the company to provide technology and personnel to the hemodialysis center through the external procurement of hemodialysis instruments and consumables, as well as responsible for operation and management. The company is currently developing hemodialysis concentrate and peritoneal dialysate and is expected to obtain a certificate of registration by the end of 2016. At the same time, it does not rule out that the company will give full play to the advantages accumulated in the field of large infusion and medical device syringes and enter the field of hemodialysis pipeline. In the future, with the continuous extension of the company's hemodialysis industry chain and the continuous landing of the hemodialysis center, hemodialysis business is expected to become a new growth point of the company's performance.

The preparation and construction of Hainan Boao Jimin International Medical Anti-aging Hospital is progressing smoothly. The company announced in December 2015 that it acquired 51% of the shares held by Beijing Zhongzhong Anti-Aging Medical Investment Management Co., Ltd., Hainan Boao Zhongzhong International Medical Anti-Aging Center Co., Ltd. The company announced the success of the land auction in February 2016, and in June 2016 received the approval for the establishment of a medical institution issued by the Hainan Provincial Health and Family Planning Commission, which changed its name to Hainan Boao Jimin International Medical Anti-Aging Hospital. the subjects of diagnosis and treatment include preventive health care, internal medicine, surgery, obstetrics and gynecology, paediatrics, dermatology, medical cosmetology, oncology, rehabilitation medicine and so on. The hospital is located in the advance area of international medical tourism in Boao Laocheng, Hainan. It enjoys policy advantages such as accelerated special examination and approval of imported medical devices and drugs, application and development of cutting-edge medical technology projects such as stem cell clinical research, practice of overseas medical technology and medical personnel, and appropriate reduction of tax rates on some instruments and drugs with higher import tariff rates. With the help of the preferential policies enjoyed by the advance area, Hainan Boao Jimin International Medical Anti-Aging Hospital can share the latest international life science research results earlier than other domestic hospitals, and will transplant the international research results to China first. Introduce advanced medical equipment ahead of other domestic hospitals. With the policy advantages of overseas medical skills and medical personnel to practice in the advance area, the hospital can more easily cooperate with foreign medical institutions, and is expected to build a high-end medical service organization with international cutting-edge technology and talent allocation.

The growth of the main business is under pressure, and the echelon development of new products is worth looking forward to. The company's main products are large infusion (non-PVC soft bag infusion and plastic bottle) and injection puncture equipment (safety syringe, aseptic syringe) products. Under the influence of the "limited resistance" policy, the large infusion plate is under pressure as a whole. In the first quarter, revenue fell 9.7% from a year earlier, and net profit fell 38.4% from a year earlier. The non-PVC soft bag of high-end products in the company's layout is superior to glass bottles and plastic bottles in large infusion (reducing secondary pollution, no risk of plasticizer precipitation, etc.). It is internationally recognized as the safest and reliable form of infusion packaging. With the improvement of drug safety requirements and the continuous decline of non-PVC infusion prices, the use of non-PVC infusion will no longer be limited to high-end hospitals. In the future, it is expected to benefit from the use of domestic primary medical and health institutions. At present, in Zhejiang, Jiangsu and other economic provinces, non-PVC soft bag infusion has entered the procurement list of grass-roots medical and health institutions as a basic drug. At present, the company's safety syringes are mainly exported to the United States. with the progress of technology and the reduction of production costs, people's awareness of safe injection, the use of safety syringes and self-destructing syringes will be the development trend of syringes in the future. According to Frost Sullivan, the number of safety syringes will grow at a compound annual rate of 19.9% and the amount of money will grow by 18.5% in the next five years. According to statistics, the United States will maintain a compound growth rate of 15% in the next five years, and the company's safety syringe export business is expected to continue to benefit from the growth of overseas markets.

Earnings forecasts and ratings. The company has made continuous actions in the layout of medical services. the signing of the agreement of the second Hospital in Ezhou and the planning for the future development of the second Hospital in Ezhou show the company's ability to integrate medical service resources and look forward to the further development of the company in the layout of medical services. With the continuous extension of the hemodialysis industry chain and the continuous construction of the hemodialysis center in cooperation with the hospital, the hemodialysis business is expected to become a new growth point of the company's performance. The main infusion growth is limited and the policy affects the growth pressure, but the development of the echelon of new products is worth looking forward to. It is estimated that the EPS of the company from 2016 to 2019 is 0.14,0.14 and 0.15 yuan respectively. Cover for the first time, giving a "buy" rating.

Risk tips: industry policy risk; product price fluctuation risk, performance below expectations.