FY15 results in line with our expectation

FY15 revenue was Rmb3.22bn (+16.21% YoY) and net profit was Rmb210m (+5.54%YoY). Meanwhile, EPS came in at Rmb0.41. By segment, healthcare services generatedRmb700m in revenue (+29.79% YoY) in 2015, with a gross margin of 25.81%; drugmanufacturing and distribution had revenue growth of 15.69%, with a gross margin of20.57%. Healthcare services contributed 21.73% of total revenue, up 2.27ppts YoY.

Healthcare services are becoming a key driver of earnings growth

Jinling provides healthcare services mainly through Suqian/Yizheng/Anqing Shihuahospitals. It designs development strategies for the three hospitals based on theirdifferent development stages. Suqian, where work centres on joining the ranks ofGrade 3, Class A hospitals, has maintained steady operating result growth. Yizheng,aiming to develop into a Grade 3 hospital, is preparing to establish high-end obstetricsunits, such as an ICU and a tumour therapy centre. Anqing is seeking to do the basicswell on the back of Drum Tower Hospital. With Anqing and Yizheng entering rapidgrowth phases, we expect healthcare services to have revenue up 40% in 2016.

Drug manufacturing maintains steady growth

Growth in Jinling's drug manufacturing segment was constrained by tender price cutsin 2015. Traditional Chinese medicine (TCM) had a 9.20ppt decline in gross margin to25%, in addition to a 5.26% revenue drop. Chemical drugs posted revenue growth of23.24%, despite gross margin falling 0.83ppt to 19.34%. With many provinces set tolaunch drug tendering in H116, we forecast the company's revenue from TCM shouldmaintain c5% growth in 2016, while we expect revenue from chemical drugs to risec10%.

Valuation: Price target of Rmb15.65; maintain Buy

We derive our price target of Rmb15.65 using DCF-based methodology (WACC 8.1%),translating into 28x 2016E PE. We believe the solid growth potential of Jinling'shealthcare services segment has not been fully priced in and maintain our Buy rating.