The fast-moving psychiatric medical group Corning Group is the second largest mental health care hospital in China based on revenue for FY14. The largest hospital in the group is Corning, Wenzhou. It is a grade 3 A private psychiatric specialist hospital in China, and it is also a national key specialist construction unit for psychiatry. Currently, Corning operates five hospitals and manages four medical institutions of its own, and expects to establish three additional psychiatric hospitals in Linhai, Shenzhen, and Hangzhou by 2016. The number of beds is forecast to grow by 28.9%/33.9% year over year in FY15/16. There are insufficient psychiatric beds in China, and the development of psychiatric care in China still lags behind developed countries. According to estimates by the World Health Organization, the share of psychiatric diseases in China will increase markedly, accounting for 17.4% of the country's total burden of disease by 2020, which is higher than our current estimate of 15%. However, in 2011, the average number of psychiatric beds per 10,000 people in China was only 1.47, much lower than the median of 7.4 in G7 countries. Based on (1) the shortage of psychiatric medical services in China; and (2) the use rate of beds in public hospitals is over 99%, we believe this is beneficial to Corning's revenue growth. The increase in profit margins on treatment costs We predict that more than 80% of gross profit in FY15 will come from high-margin treatments and general medical services (FY14 profit margin: 45.0%), while drug sales only accounted for 15% of gross profit, with a profit margin of only 17.3%. Corning is a specialist and private hospital, and has pricing power for some psychiatric treatment services (including music and hypnotherapy, etc.). In view of government requirements to limit the share of hospital drugs, Corning's development model is in line with national policy guidelines. The cash flow discount target price is HK$49.81. The target price for the first purchase of our first purchase based on cash flow discount is HK$49.81, which is equivalent to 37.6 times the predicted price-earnings ratio for FY16 (1.3 times the profit ratio), which is 0.5 standard deviations higher than the average price-earnings ratio predicted for the Pan-Asian market over the past 5 years. Based on the 10-year cash flow discount method, the valuation of the Group's major hospitals is HK$1,928 million or HK$26.39 per share, which is equivalent to 37.0 times the predicted price-earnings ratio for FY16, accounting for 53.0% of our current valuation of the company. We believe Corning should enjoy a valuation premium because Corning (1) has a unique position in the Chinese healthcare market; (2) is a first-class psychiatric specialist hospital; (3) expansion plans are clear, and profit growth is clearly visible.