Ladies and gentlemen, thank you for standing by and welcome to Concord Medical’s First Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today, Thursday, May 21, 2015. I would now like to hand the conference over to your speaker host today, Mr. Bill Zima from ICR. Thank you, sir. Please go ahead.

Hello, everyone and welcome to Concord Medical’s first quarter 2015 earnings conference call. Concord Medical’s earnings release was distributed earlier today and you can find a copy on the company’s website as well as on Newswire services. Today, you will hear from Dr. Jianyu Yang, Concord Medical’s Chairman and Chief Executive Officer and Mr. Adam Sun, Chief Investment Officer. After their prepared remarks, Dr. Yang and Mr. Sun will be available to answer your questions. Before we continue, please note that the discussion today will contain forward-looking statements under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to those outlined in our public filings with the SEC. Concord Medical does not undertake any obligation to update any forward-looking statements except as required under applicable law. Both our earnings release and remarks made during this call include discussions of certain unaudited non-GAAP financial measures. Our earnings release contains a reconciliation of the unaudited non-GAAP measures to the most directly comparable unaudited GAAP measures. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will also be available on Concord Medical’s website. With that said, I would now like to turn the call over to Concord Medical’s Chairman and CEO, Dr. Yang. Please go ahead.

Ladies and gentlemen, welcome to Concord Medical’s first quarter 2015 earnings conference call. Our radiotherapy and diagnostic imaging center business achieved healthy growth in the first quarter of 2015. This good start has laid the solid foundation for our full year development plans. Net revenues from network business were RMB150.7 million, representing a 5.7% increase from the same quarter last year. Adjusted EBITDA non-GAAP was RMB68.8 million. We expect the network business to maintain steady growth for the remainder of 2015 and beyond providing stable and sustainable cash inflow for our growth developments. Our CIO, Mr. Adam Sun will address our financial results in greater detail later in the call. And now, I would like to share with you strategic development plans for Concord Medical and our recent initiatives. In the past year, the Chinese government has launched a series of favorable policies to encourage private capitals to invest in the healthcare industry. These policies provide clear cut lines to our growth strategy and will have moved the industry forward. Concord Medical’s goal is to be a national network for cancer diagnosis and treatment and to become a leading medical group in China with a focus on specialized cancer hospitals. Currently, we have planned to construct premium cancer hospitals in three first Tier cities, namely Beijing, Shanghai and Guangzhou. These hospitals will follow international standards and introduce to Chinese patients, not only the most developed cancer treatment and diagnostic equipment, but also the advanced hospital management and medical procedures as well as multidisciplinary team diagnosis and treatment. Once complete, these specialized hospitals will serve as the backbone of the Concord national hospital network and will provide differentiated cancer diagnosis and treatment service. We believe these high end hospitals will become the leading specialized cancer hospitals in China and the Asian…

Thank you, Dr. Yang. Welcome everyone to our call. For the first quarter of 2015, total net revenues were RMB150.7 million or $24.3 million representing an annual increase of 5.7%, primarily due to improvements in product mix especially the increased contribution from PET-CT and Cyber Knife centers in our network. We are very pleased to see significant growth in the revenue contributed by both PET-CT and Cyber Knife, which achieved double-digit growth year-over-year during the quarter. And they combined to account for over 30% of our total revenue. As of March 31, 2015, we operated a total network of 132 centers in 54 cities in China and have entered into agreements to establish another two centers in China. Gross profit was RMB74.4 million or $12 million, representing a 4.3% decrease year-over-year, mainly due to higher costs of revenue attributable to increased medical consumable expenses for the network. Gross margin was 49.4% compared to 54.5% for the first quarter of 2014. Operating income was RMB27 million or $4.4 million, compared to RMB35.4 million in the first quarter of 2015. Income tax benefit was RMB6.6 million or $1.1 million for the first quarter of 2015 compared to income tax expense of RMB11.7 million in the first quarter of 2014. The benefit was mainly due to the reversal of withholding taxes related to the company’s overseas investment. Net income attributable to ordinary shareholders was RMB28.5 million or $4.6 million for the first quarter, compared to RMB27.1 million in the first quarter of 2014. The net profit margin was 18.9% compared to 19% in the first quarter of 2014. Both basic and the diluted earnings per ADS for the first quarter of 2015 was RMB0.68 or $0.11. Adjusted EBITDA was RMB68.8 million or $11.1 million for the first quarter of 2015. During the first…

Certainly, sir. [Operator Instructions] Your first question comes from the line of Isabella Zhao from Morgan Stanley. Please ask your question.

Thank you. Thanks for taking my questions. I have two questions. I will translate my question into Chinese later on. The first question is regarding the future plans for the Singapore Hospital and can Mr. Yang give us more color on what kind of revenue and the net profit contribution we should look at for 2015 and ‘16 going forward? And my second question is regarding the number of network centers, we noticed we closed seven centers in the first quarter. I am wondering what’s the reason behind it? And then looking for the rest of the year, how many centers we expect to add or close?

Thank you for your question. I will answer the first question and we will leave the second question to Adam Sun. As I mentioned in my talk later – sorry, as I mentioned in my talk Singapore Hospital is an important complementary to our growth premium hospitals in Shanghai, Beijing and Guangzhou. For our hospitals in Beijing, Shanghai and Guangzhou we have consulted with MD Anderson [indiscernible] construction. But we expect the very – the construction period for the three hospitals will be 3 years. So in the next 3 years, we can also meet the high end demand from Chinese patients. But for the hospitals [ph] in Singapore, it is already a fully operational hospital. So we are now doing the integration with this hospital. And there was a suggestion and the consult of MD Anderson. We hope that in a few months, we could use these hospitals to serve Chinese patients. We have been asked for several times about the purpose of the acquisition. I would like now to share with you our thoughts on this acquisition purpose and our future plan on that. Firstly, I would like to compare on the original operation of this hospital with our future plan. In the past, surgical – Fortis Surgical Hospital is more like a real estate provider it cooperates with several high-end clinicals in Singapore. These clinicals in Singapore will give diagnosis to their patients and once they find out that their patients need to do a surgical, they will send it to Fortis. But we are now transforming this hospital into a cancer specialty hospital with its own advantage in technology with its own brand awareness. Another difference is that Fortis will get more technical support. In the past, Fortis can only get technical support from their –…

So first of all, we closed seven centers, at least closed during the quarter. So these seven centers are in fact located in two hospitals as you know in some of our hospital partners, we installed more than one equipment. So basically, we closed the business relationship with two of our hospital partners. First of all, one of the criteria we used to close the center is consistent underperformance compared to its peer equipment in our network. Second criteria we use is the lack of social insurance payments for the specific item of treatment or diagnosis. The third criteria we use is a long collection cycle. In fact some – among the centers we closed one of the hospital partner has been not paying us for quite a long time. So this center has been on a cash basis – from cash basis in terms of our revenue. So we consider a close of our center as a last result. And we tried – we really tried all kinds of measures to turn the performance around. And if the performance is still under – if you cannot reach our targets, we will decide to close. But it’s a very careful process we adopt. So [indiscernible] of our closed centers, it will not result in any capital loss for the company. In other words, the sales price will not be lower than the book value of our equipment. So at the same time we are going to settle all the outstanding bills with our hospital. So that same – some of these centers are of cash basis only, so that once this outstanding collection is complete, it will result in an extraordinary income for us. So to answer the question about, whether we didn’t closed any other centers during the year, my answer is no at this moment, because most of our 132 centers now are performing up to the standard and some of them have achieved extraordinary growth year-over-year.

Let me add something to Adam’s answer. I would like to emphasize that we are now transforming the current centers in our existing hospitals into freestanding self-owned centers. As the healthcare reform is implemented in China, we get the opportunity to establish our own freestanding self-owned cancer center, which is registered as level two hospitals. Through these hospitals we can gradually build up our own brand, we could introduce the advanced experience and technologies from MD Anderson. So think of this strategy, I would like to consider it as an upgraded strategy of our existing network. Looking forward, our strategy is to expand the network of our freestanding centers in areas which we have existing sources and patient demand. Thank you.

Thank you. [Operator Instructions] Your next question comes from the line of Johnson Sun from GL Capital. Please ask your question.

[Foreign Language]

Please, first let me translate the question into English. The question is about now the Asia and [indiscernible] both in China has become very hard. We will [indiscernible] and come back to China. Thank you for this question, Mr. Sun. We have been asked about this question for many times.

We did notice that some of our peers in the healthcare industry have got extraordinary high valuation in Asia. But for CCM our strategy is to provide cancer treatment and diagnosis for our high end patients to meet the high end demand by taking advantage of advanced technology, so we need international collaborative partnerships, that’s why we have to – it’s better for us to be listed on the international capital markets. We will continually pay close attention to the domestic capital markets. But at the moment, we didn’t consider any – we don’t have the consideration to go private. Thank you.

Thank you. Our last question comes from the line of Peter Halesworth from Heng Ren Investments. Please ask your question.

Thank you. And also I would just like to say I support the Chairman’s view on maintaining Concord as an international company with an international strategy and not falling prey to the short-term as and that seems to be pervasive among Chinese local investors. My question is around the – around financing in the Shanghai hospital, if perhaps you can outline what the anticipated cost is of the construction of the hospital and also breakdown the sources of funding for the hospital and what you expect the debt for the company to be at – in the end of 2015 and also 2016? Thank you.

The second question for the Concord cancer hospital in Shanghai, the registered capital is RMB500 million. For the first phase construction, the construction cost is RMB1.2 billion to RMB1.5 billion. Except the RMB 500 million of registered capital, the rest of the capital will be funded by local banks in Shanghai will provide long-term loans with relatively low rates for us and we – another good thing is we could pay back after the hospital become operational. We have mentioned in our annual report that firstly Datong has strong cash position, secondly Datong has healthy cash flow, and thirdly we have a sufficient credit line from the bank, but we only utilize a small portion of it. So based on our own cash and bank loans, we are confident to fund our new projects. And for the ratio of the debt, I will leave it to our CIO, Mr. Adam Sun.

Thank you. Hi, Peter. So as I have discussed during my prepared remarks, we have – currently we have total credit lines from the local and international banks closing RMB2.8 billion and we only utilized about a third of it. And another thing I want to emphasize is that this RMB2.8 billion credit line doesn’t include the long-term loans that we are currently in discussion with the local banks to support our construction of the hospitals. So in other words, we have sufficient amount of potential credit lines to support the construction and to the project. And also, I want to repeat again that currently our total loans outstanding is about RMB880 million, but out of which about RMB460 million or 52% of them cash collateralized, which means that we need to deposit the same amount of RMB into the local bank and then the same bank will extend us by U.S. dollar or other foreign exchange denominated loans on the 100% basis. In other words, these are not loans in a pure sense, but rather than it is like a current deposit turned into an LOU. So if we subtract that portion of the loan, which lowers our total loan outstanding to around RMB440 million, which gives us bank loans to total assets ratio of less than 20%, so which is a very strong and healthy financial performance for us. So to combine all the factors we have discussed i.e. the stable and healthy cash flow from the current business, the strong support from the international and the local financial institutions and the and the 100% [ph] bank loans we are going to utilize, we have full confidence that our construction projects will be safely and satisfactorily financed using both cash on hand and financing from the local institutions.

Thank you. Just a quick follow-up so there isn’t an estimated total liabilities for 2015 or end of 2016. And secondly, for the new long-term loans will that also involve collateralized cash arrangement or will they be more relaxed?

No. The long-term loans will now be cash collateralized, but mainly based on the estimates and the assessments of the banks regarding the potential profitability of the project. So it will be a totally different arrangement. And as for the loan balance at the end of this year and last year, I would rather probably have more discussions on another occasion.

Thank you. I would now like to hand the conference back to the management team for closing remarks. Please continue.

Once again, thank you for joining us today. Please don’t hesitate to contact us if you have further questions. Thank you for your continued support. Have a good day.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.