Event: according to the company's 2016 annual report, operating income in 2016 was 500 million yuan, down 7.3% from the same period last year; operating profit was 36.998 million yuan, down 34.5% from the same period last year; net profit from home was 32.397 million yuan, down 36.0% from the same period last year; and net profit from non-return was 32.067 million yuan, down 30.3% from the same period last year. According to the forecast of the first quarter's results, the company's first-quarter net profit was 2.686 million yuan to 3.925 million yuan, down 5% from the same period last year. Shanghai Mijian had operating income of 54.326 million yuan in 2016 and a net profit of 21.127 million yuan, slightly lower than the bet performance when the company acquired the remaining 49 per cent stake in Mijian in 2016. Due to the economic downturn, the release of orders for industry solutions is slower than expected, and the company's performance is under pressure.

With the economic downturn, the release of orders for industry solutions is slow, and the company is actively seeking change to promote the improvement of converged cloud services. The company's industry solutions business is mainly concentrated in the northeast region, and 78% of its revenue is concentrated in Liaoning Province. The economic downturn in Northeast China has greatly affected the release of business orders for the company's industry solutions. In 2016, the release of orders from the company's traditional advantageous industries, finance and education, slowed down, and the company's traditional main business was greatly affected. Revenue from the company's intelligent converged cloud services fell 16.7% year-on-year, and gross profit margin fell 2.3 percentage points. At the same time, the company's provision for bad debts exceeded 20 million, an increase of nearly 100 percent over the same period last year. The company actively improves the operation quality of traditional business, optimizes operation, improves the service capability of industry solutions, reduces costs by improving the online interconnection of services, and at the same time actively carries out research and development of cloud and big data-related technical tools to improve competitiveness.

Both internal and external repair, smart medical business continues to advance. During the reporting period, the company acquired the remaining 49% stake in Shanghai Mijian, completing the first phase of the integration of the smart medical business. The company and Shanghai Mijian actively promote R & D and channel cooperation to speed up the development of smart medical business. Shanghai Mijian is still in the period of business development, and three benchmark customers such as Shanghai Changhai Hospital, China-Japan Friendship Hospital and Chaoyang Hospital have been added during the reporting period, and the products have won a good reputation. The company's health data service business revenue increased by 29.5% compared with the same period last year, accounting for 28.5% of the company's total revenue, and the contribution of operating profit increased to 47.9%. The company continued to increase its R & D investment in the smart medical sector, with R & D investment of 34.95 million yuan in the reporting period, an increase of 10% over the same period last year. The company focused on clinical information system (CIS) product research and development, further mature CIS products such as ICU, hand anesthesia, emergency care, care, and hemodialysis, and actively laid out AI+ healthcare, set up expert think tanks, and constantly improved the threshold of the company's core competitiveness in the field of intelligent medicine. At the same time, the company strengthens foreign investment and cooperation, cultivates high-quality assets in the venture capital fund, and cooperates with departmental software to jointly develop hospital intelligent integration platform and clinical data center products.

Profit forecast and investment advice: in 2017, Shanghai Mijian will consolidate 100% of the year, and the company's profits will be greatly improved. Taking into account the impact of the northeast economic malaise on the industry solutions business than expected, appropriately lower the profit forecast. It is estimated that the company's EPS from 2017 to 2019 will be 0.18,0.22,0.27 yuan respectively, and the compound growth rate of return net profit in the next three years will be 39.6%. The company is currently in a period of transition, and we are still optimistic about the future layout of the company in smart health care and maintain the "overweight" rating.

Risk tips: the market may continue to be depressed, product promotion may be lower than expected, market competition may be intensified, and the performance of M & An enterprises may be less than expected.