A major deal in ophthalmology sector announced, maintain BuyHaohai announced the acquisition of a 60% stake in an ophthalmology tradingcompany at a consideration of Rmb360m, implying a 2017E PE of 8x PE, based on theagreed profit target of Rmb75m/Rmb80m for 2017/18E. We estimate the deal shouldbe meaningfully accretive to Haohai's 2017E results, after considering the interestincome loss and the potential amortization of intangible assets. With the deal in place,we are more confident that Haohai should be able to deliver 20%+ earnings growth in2017. However, we leave our model unchanged for now considering the uncertainenvironment with harsh price cuts and tight control on insurance expenditure. Tradingat 15x 2017E PE with 20% expected earnings growth, we think Haohai's valuation isattractive.
　　Product diversification and network overlap may provide synergyThe acquired company is mainly engaged in distributing imported ophthalmologyproducts including intraocular lens （IOL）， ophthalmic visoelastic devices （OVD）， andsodium hyaluronate （HA） gel used in glaucoma surgery. It is also a long-term partnerwith with Lenstec Inc, one of the major imported IOL suppliers in the China market,with a 5-year exclusive distribution contract on hand. In our view, the acquiredcompany's product diversification and network overlap with HH's existingophthalmology business should provide good synergy for post-acquisition integration.
　　OIVS faces pressure of policy headwinds; dermal fillers may provide surprisesAs discussed before, the OIVS sector faces pricing pressure during tenders and hadsome dysfunction in some parts of the distribution channel because of the expectedimplementation of the two-ticket rule. However, we think the geographic expansion ofits chitosan OIVS should partially offset the price cut of HA OIVS and drive the sectorfor high-single digit growth. On the other hand, dermal fillers are emerging into a newdriver of the company. While its Matrifill kept strong growth momentum so far in '16,its second dermal filler, Janlane, was also approved at the end of September, adding aseparate brand to facilitate differentiated marketing in the medical cosmetic market.
　　Valuation: Maintain price target of HK$53.7 unchangedWe maintain our DCF-based price target of HK$53.70 （@WACC of 10.1%）， implying a2017E PE of 20x, or PEG of 1.0x.