Jin Tianyang is one of the leading medical retailers and subcontractors in the north of China. It has the largest retail medical network in North China, and is the largest private medical subcontractor in North China. In terms of retail services, the market has 794 self-service stores (as of June 30, 2013, there are 339 and 452 stores in tier 2 and line 3 and 4 respectively), and has achieved rapid growth through member value-added services, gold academy training and various promotional activities. As far as distribution service is concerned, the service mode of collection includes traditional distribution and direct supply mode. At present, we have focused on the direct supply model in which the development of the Bank of China has achieved great development.

The company's (1) cluster occupies a leading position in North China. According to the data of the South, it has the largest medical retail link network in northern China according to the number of self-owned retail stores. The per capita local output growth rate of North China from 2008 to 2012 is higher than that of the country's average medical retail sales, providing an environment conducive to development; (2) a high profit rate compared with the same industry; and (3) a strong ability to collect and integrate performance. The collection company began to receive sales in 2011, collecting 574 retail stores and three medical branch companies during the purchase period; (4) implementing an effective direct supply model to sell most of the high gross profit margin products directly to manufacturers with effective manufacturers, and then sell these products to customers, hospitals, clinics and other medical retailers, eliminating most of the promotion and distribution costs generated by the value of traditional medicine.

Overview of the industry

According to data from the Southern Institute, China's total medical expenditure increased from 1,454 billion yuan in 2008 to 2,891 billion yuan in 2012, with an annual growth rate of 18.8 percent. With the continuous promotion of the national medical reform, China's total medical expenditure has increased rapidly, and it is expected that it will continue to grow in the coming years. According to the World Bank report, medical expenditure in most developed countries accounted for between 7.0% and 18.0% of the total domestic product in 2011, while China's medical expenditure accounted for about 5.2% of the gross domestic product in 2011. According to data from the South, from 2012 to 2016, China's medical expenditure will continue to grow at a complex annual growth rate of 19.4%, and will reach 5,883 billion yuan in 2016. According to the World Bank report, China's per capita medical expenditure increased from US $114 in 2007 to US $278 in 2011, with a compound annual growth rate of 25.0%, which is higher than that of many other countries (including the United States, Japan and other countries).

However, according to data from the south, China's per capita medical expenditure in 2011 accounted for 3.2%, 7.0% and 17.2% of the per capita medical expenditure in the United States, Japan and other countries, respectively, and it is estimated that it will not continue to grow rapidly. China's per capita medical expenditure increased from 384 yuan in 2008 to 791 yuan in 2012, with a compound annual growth rate of 19.8%. According to data from the South, it is estimated that China's per capita medical expenditure will maintain a complex annual growth rate of about 20.9% from 2012 to 2016.

According to the data of the Southern Institute, the total cost of medical sales (including funds sold by hospitals, clinics, health stations and retail stores to consumers) increased from 470 billion yuan in 2008 to 1,117 billion yuan in 2012, with a compound annual growth rate of 24.2%. From 2012 to 2016, the municipal regulatory model is expected to maintain a complex annual growth rate of 20.2% and reach 2,336 billion yuan in 2016.

The value of a typical medical practice is divided into three major models: (I) upstream medical manufacturers; (ii) medical subcontractors (including primary and secondary subcontractors); and (iii) downstream customers (including hospitals, health stations, clinics, retail stores and end-users). The medical products of upstream manufacturers often pass through first-or second-level subcontractors to downstream consumers. Sub-dealers will choose to sell medical products to downstream hospitals, health stations and clinics on the basis of their own sales networks and customer resources. According to the data of the Southern Institute, in China, the total sales of sub-contractors to hospitals, medical centers, restaurants and retail stores increased from 340.4 billion yuan in 2008 to 890.6 billion yuan in 2012, with a compound annual growth rate of 27.2 percent. The standard of the division of medicine is expected to reach 1,870.7 billion yuan in 2016.

According to data from the south, the total sales of goods sold to customers through retail outlets in northern China increased from 8.3 billion yuan in 2008 to 16.1 billion yuan in 2012, with a compound annual growth rate of 18.1 percent.

In 2012, the sales volume of medical retail markets in northern China accounted for 7.1% of the total medical retail market sales in China. Due to the lack of large national medical retailers with a major market share, the practice of medical retail in northern China is highly fragmented and fierce. The market for medical retail in northern China is dominated by leading regional stores and will continue to be integrated, so the forecast of such leading regional stores will benefit from it.

Profit ability and duty number

Based on the historical records of the past three years, the income of the collection has increased from 85.86 million yuan in 2010 to 23.263 million yuan in 2012, with a compound annual growth rate of 53.6%. The annual growth rate of Malaysia has increased from 12.25 million yuan in 2010 to 2.138 million yuan in 2012, with a combined annual growth rate of 73.1%. In the first half of 2013, income and profits increased by 49.5% and 117.5%, respectively. The significant increase in revenue and profitability during the previous period was attributable to the continued increase in sales of all products in the fair and the substantial increase in the number of retail outlets (from 185 in 2010 to 791 on 30 June 2013). According to the 2012 figures, licensed brands and retail products accounted for 29.2% and 27.2% of retail and retail product revenue, respectively, and according to sales channels, income from distributors accounted for about 50.1% of the total income. Income from medical retailers and hospitals and clinics accounted for about 29.5% and 20.4% of the total income, respectively.

Collection purpose

HK $13.610 million (based on the median of HK $3.57 per share) from this collection will be used for the following purposes: about 40% of the proceeds will provide funds for income collection in China (especially in the northern regions of China); about 30% of the proceeds will provide funds for internal growth, including new stores, upgraded existing logistics centers and external logistics centers. About 20% of the proceeds will be used to promote golden hearts, licensed brands and licensed brand products, and about 10% of the proceeds will be used for financial assistance.

Valuation

It is estimated that the profit for the political year in 2013 will be not less than 325 million yuan, and the earnings per share will be not less than 0.163 yuan. According to this calculation, the market's 2013 forward price-to-earnings ratio is 14.1 to 20.5 times, and the historical price-to-earnings ratio is 4.2 to 4.4 times. The forward price-to-earnings ratios of peers such as 1099.HK and 2607.HK are 19.6 and 17.5 times, respectively. We believe that with the support of (I) the aging of the population, (ii) the rising income level supporting the increased demand for higher living standards, and (iii) the increase in coverage of medical insurance, the development prospects of China's medical profession are promising. At that time, the medical reform led by the Chinese government was aimed at establishing a national insurance system, including: (I) the basic medical insurance system for urban workers; (ii) the basic medical insurance system for urban residents; and (iii) the cooperative medical care system for new rural areas. According to China's health statistics in 2012, by the end of 2012, the two urban and rural insurance plans covered 536 million urban and rural residents, accounting for 75.3% of the total urban population. At the same time, the NCMS covered about 805 million rural residents, accounting for 98.3% of the total rural population. For some diseases for which the treatment procedure is high-risk, a medical reporting system has been established, which stipulates that a minimum of 50% of medical expenses will be reported in addition to the basic medical insurance. We expect that with the support of government policies, China's medical expenditure will continue to grow rapidly in the coming years. As far as the market is concerned, it has a leading position in the north of China, and the direct market model also helps to improve the profit rate. we believe that the rapid growth of the market can be sustained and the valuation is reasonable. It is recommended that investors buy shares.

Negative factor

(1) the retail and sub-sector professions of Chinese medicine are decentralized and highly competitive, and the collection of various services are in the face of fierce competition; (2) most of the revenue from the collection comes from the northern and northern regions of China, especially in Heilongjiang Province. Since 2012, the income from North China and the North China region has been 11.952 million yuan, accounting for 84.5 percent of the total revenue from sharing services. If there are few sales in these areas, the collection service may be greatly affected; (3) depending on the supplier to supply all the medical products (including the licensed brand products of the market), failure to maintain a relationship with them may have a negative impact; (4) some retail stores in the collection may not be able to make a profit due to poor location, poor marketing and publicity, or products that do not meet local demand. (5) large investment funds and capital investment are required for collective financing and planning, the collection may not be able to obtain the required funds on acceptable terms or cannot obtain the funds at all; (6) the failure or recall of some of the products sold or distributed by the cluster or the responsibility of any existing products produced as a result of the misuse of the most expensive products may cause the cluster to suffer.