Event:

The Company announced to enter the Strategic CooperationAgreement on Internet + Medical Service with Zhuojian InformationTechnology, in order to tap both companies’ advantages in the medicalservice and mobile medical service fields to bolster development of theintegrated medical service solution service, the medical serviceplatform, the smart e-commerce platform etc.

Comments:

Zhuojian is deeply rooted in the mobile medical service market ofZhejiang. Established in 2011, Zhuojian completed the series Bfinancing (Rmb150mn) at the beginning of 2015. WEI Jianfeng, itsco-founder and CEO, is a distinguished expert in Zhejiang Province anda liver surgeon in the First Affiliated Hospital of Zhejiang University, andhe holds a Ph.D. in surgery from the US. Zhuojian is refrained fromblindly pursuing the increase in hospital coverage. Instead, it has beenconsistently focusing on the hospitals in Zhejiang. At present, Zhuojianhas a palm hospital and mobile telemedicine platform, a health cloud TVservice etc.

Both parties will give play to their resource advantages. BothZhejiang Int’l Group and Zhuojian provide integrated service solutionsincluding patient diagnosis & treatment, drug marketing etc. to themedical institutions in Zhejiang province. Zhejiang Int’l Group is able tomake use of its hospital resources to aid development of Zhuojian’smobile medical service business, while the latter’s IT platform may helpto introduce the Company’s new products to the hospitals, maintain therelations with physicians and boost sales of its premium, new anddistinct products in hospitals.

The two companies will jointly develop professional medicalservice and smart e-commerce platforms. Zhejiang Int’l Group andZhuojian will make best use of the data and resources in the health andcommerce segments to offer (including but without limitation to) servicessuch as mobile payment, O2O interactive marketing, data management,BI analysis etc. Additionally, the two companies may jointly offerconsulting, designing, operation and development services on the smartmedical service and e-commerce platforms as a project consortium inorder to win new hospital customers.

Injection of the 50% stake of Int'l Medicine is well underway. Due tohistorical reasons, Zhejiang Int’l Group has a relatively complicatedequity structure, with Sinochem Group being its actual controller buthaving a similar stake to Zhejiang SASAC. Injection of the 50% stake inInt’l Medicine means that the two major shareholders are workingclosely to promote development of the Company. At present, thefollow-on offering plan is pending for official approval of SASAC, theShareholders’ Meeting and CSRC.

Continue to expand establishment in the high-margin business fields and innovative businessmodels. Since 2013, the Company has been energetically developing the medical device/consumablesdelivery, TCM slice, DTP pharmacies and medicine e-commerce businesses. We predict that growth ofits medical device and TCM slice sales revenue will exceed 40% YoY in 2015. The Company’se-commerce platform and DTP pharmacies have preliminarily taken shape in Zhejiang Province.

Potential risks: Slower-than-expected progress of the follow-on offering; slow development of themedical device and drug e-commerce business.

Initiate BUY. Considering the dilution of the follow-on offering, we project the Company's 2015-17E EPSto be Rmb0.56/0.65/0.79, and come up with a TP of Rmb35.75 based on 55x 2016E PE (averagevaluation of comparable companies). Initiate BUY.