和美医疗(01509) 　　HMNC introduces its new and second largest shareholder, the Taikanginsurance group which has acquired 26.44% shares from two pre-IPOinvestors and management, at a share price of HK$6.54, 11% premium to lastclosing price 　　Positive outlook over long-term, leveraging on Taikang’s large policy holderbase and network in healthcare sector 　　Maintain HOLD with TP revised up to HK$5.50 based on 35x FY17E PE, fromprevious 25x FY17E PE 　　Insured for the long term HMNC announced that Taikang insurance group hasentered into sales and purchase agreement of 26.44% equity stake with two pre-IPOinvestors of the company, Tianjin Dinghui (10.37%), CCBI investment (6.07%),management and related parties (10%), at the price of HK$6.54, 11% premium to lastclosing price and implied 41x FY17E acquisition PE. Upon completion of thetransaction, Taikang will become the second largest shareholder with 26.44% stake,while chairman Lin Yuming will remain the largest shareholder with 28.33% stake, andHoneycare (100% held by Director Lin Yuguo and other 17 otherindividuals)/Harmony Care (100% held by Lin Yurong and Lin Yuhua, siblings ofchairman and Lin Yuguo) will hold 8.15% /6.10% stake as compared to16.89%/7.09% prior to the agreement. The sales and purchase agreement is subjectto government approval, and will not trigger off any mandatory general offer. 　　Positive in long-term Taikang is a leading insurance and financial services group inChina with a history spanning 20 years. Its main business includes insurance, assetmanagement, health and elderly care. We believe the introduction of Taikang as thecompany's second largest shareholder is positive for existing shareholders in thelong-term, as HMNC can leverage Taikang’s network in healthcare sectors and itslarge policy holder base which is likely to offset the drop in inpatient/outpatient visit ofthe company after the repercussions of the Weizexi incident. 　　Maintain HOLD on weak FY16E results, earnings revision pending release of furthercooperation details, We maintain our HOLD rating on HMNC with TP revised up fromHK$4.00 to HK$5.50 based on 35x FY17E PE, from previous 25x FY17E PE giventhat we believe the new strategic insurance shareholder will bring more synergy andbusiness opportunities such as policy holders referral to HMNC in long-term, whileearnings impact is subject to, if any, business cooperation plan details. Thus wemaintain our earnings forecast unchanged given 10M16E operation. 　　Risks: 1) Fail to complete the transaction; 2) faster than expected recovery fromWeizexi incident, 3) change of business nature to insurance