Growth acceleration led by consolidation, margin expansion underway    Aier reported revenue/core profit of RMB1.4bn/214m in 2Q17, representing YoYgrowth of 39%/41% respectively, vs. 31%/25% for revenue/core profit growthrecorded in 1Q17. Excluding the contribution from 9new hospitals and AWHealthcare, organic growth would be 31%/ 27% in 2Q17, vs. 24%/ 22% in 1Q17.We attribute the robust results to rapid ramp-up of the profitability of the newhospitals following asset injection, as well as solid performance from excimer andcataract segments. We expect higher contribution from new assets, with marginimprovements driven by transition from low-end to high-end services.    Growth momentum continued in all three major segments    Excimer surgery, cataract surgery, and optometry achieved YoY growth of46%/38%/29% in 2Q17, compared with 36%, 26%, and 32% in 1Q17, respectively.Management attribute the growth recovery of cataract business to deeperpenetration from promotional efforts. On the acquisition front, the companyis likely to take a pause but rather focus on integration of acquired assets.Management highlighted that acquisition of Clinica Baviera is completed, andexpect the consolidation to add another leg of growth to 2H17.    Margin expansion achieved in 2Q17    Gross margin and operating margin stood at 49.4% and 21.7% respectively, in2Q17, compared with 47.7% and 19.5% in 2Q16. We attribute the GM increaseto improved service mix as customers switch to high-ASP excimer surgeries. The220bps OPM improvement was driven by smooth ramp-up of new hospitals andlower admin expenses. We highlight newly acquired hospitals achieved 15% netmargin in 2Q17vs. 7% in 1Q17.    Maintaining price target of RMB28.7; risks    Our PT is based on 25x EV/EBITDA of 2018E EBITDA. We believe 25x is justifiedas its Asia-listed peers are trading at 18x with 6.5% EBITDA growth in 2019E (vs.27% we model for Aier). Key risks include delays in geographical expansion andslower ASP/volume growth.

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