Hello and thank you for standing by the Concord Medical second quarter 2012 earnings conference call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question-and-answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Tony Tian, Investor Relations Manager of Concord Medical. Mr. Tian, you may begin.

Thanks. Hello, everyone, and welcome to Concord Medical's secdon quarter 2012 earnings conference call. Concord Medical's earnings release was distributed earlier today and you can find a copy on our website as well as on News Wire Services. Today, you will hear from Dr. Jianyu Yang, Concord Medical's Chairman and CEO, and Mr. Adam Sun, Chief Financial Officer. After their prepared remarks, Jianyu 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 made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995 and 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 t hose outlined in our public findings with the SEC. Concord Medical does not undertake any obligation to update any forward-looking statement 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 g recorded. In addition, a webcast of this conference call will also be available on Concord Medical's website. I will now turn the call over to Concord Medical's Chairman and CEO, Dr. Jianyu Yang.

First of all, I would like to welcome everyone to our 20112 second quarter earnings conference call. Concord Medical had solid growth during the second quarter of 2012. Total net revenues were RMB137 million, a 10.2% increase from the same period of last year. Included in these results, revenues from our core network or at least in management services were RMB120 million, a 15.3% increase from the second quarter of 2012. New centers in our networks continued to improve their operating efficiency and provide support to our overall business. Gross margin was 68.7% in Q2, a significant improvement from 58.4% in Q1. This performance demonstrates that our initiatives to reduce cost and improve operational efficiency instituted at the beginning of the year are having a significant effect. On June 18th we announced the successful closing of the acquisition of 52% ownership in Chang'an Hospital, a leading non-public general hospital located in Xi'an, Shaanxi Province. The company announced the signing of a definitive agreement in connection with the acquisition of 52% equity ownership in Chang'an Hospital on March 22, 2012. Since then, the company has received all necessary government approvals including new business license of Chang'an Hospital and completed all registration procedures including Capital Verification Report, Share Ownership Report and Business Registration Change Report. The financial results of Chang'an Hospital will be reflected in the consolidated financial statements of the company in the third quarter. In addition, we have made significant progress on other hospital projects, including the Guangzhou joint venture project. We recently obtained the approval of establishing a medical institution from the ministry of Health of Guangdong Province. In early 2013, we plan to begin construction on the 400-bed cancer specialty hospital. The ongoing healthcare reform in China will provide Concord Medical significant development opportunities. By 2015, it is projected that the number of private hospitals will increase to approximately 20% of the total number of hospitals in China according to China's Ministry of Health. The successful closing of the acquisition of Chang'an Hospital as well as the near future establishment of the additional cancer specialty hospitals will enable CCM to become a leading hospital operation and management group. Looking forward, we're confident in the growth of our overall business. As a leader in private healthcare services in China, we will take full advantage of the favorable regulatory environment by accelerating our effort in leading cancer specialty hospitals under our own brand and improving the operation level and efficiency of the existing center network. We will continue to build Concord Medical into a leading cancer specialty hospital management group in Asia. I want to express our appreciation again to investors and analysts for all of your support. Thank you. I will now turn the call over to Adam Sun, our CFO, who will walk you through our financials.

Thank you, Dr. Yang, and hello, everyone, and thank you for joining us today. Let's look at some key financial results for the second quarter of 2012. By now I hope everyone has seen the 6-K that was filed by the company. This contains the full financials and so I will just go through some of the key highlights and then open the call to questions. Net revenues were RMB136.5 million second quarter of 2012, up 10.2% from second quarter of 2011. During the quarter, our treatment and diagnostic business lines have seen strong growth in number of patient cases, especially for diagnostic equipment. During the quarter, the number of treatment and diagnostic patient cases were 8820 and 52,833 respectively, representing increases of 2.5% and 25.7% from second quarter of 2011. We expect the strong growth momentum for diagnostic services to be sustainable during the remainder of the year. First, basic diagnostic services such as MRI and CT are covered by government insurance programs such as new rural cooperative medical systems and RCMS. Second, people are becoming more health conscious and willing to pay out of pocket for high-end diagnostic services such as (Pad) CT. Our gross profit margin was 68.7% versus 58.4% in the first quarter of 2012 and 67.6% in the second quarter of 2011. This is a positive sign that our core network business, the lease and management business, is showing stronger earnings power and our cost control measures instituted at the beginning of the year have taken effect. Our SG&A expenses in the quarter were RMB37 million compared to RMB28.6 million in the second quarter of 2011. Also included in the operating expenses are RMB2.5 million in web-based marketing related expenses. Excluding this expense, operating expenses accounted for 25.3% of total revenue compared to 23.3% in the first quarter. This reflects rising price levels in China such as rent, labor cost, professional services, et cetera. We are doing a line-by-line review of our cost structure and will set up a target for expense reduction. Net income in the quarter were RMB38.3 million, growing 2.3% over second half of 2011. With protected double-digit top line growth for 2012 and our cost control initiatives gradually taking effect, we expect to see bottom line growth remains strong for the year as well. As Dr. Yang mentioned, we officially closed on our Chang'an Hospital in June and we are very pleased to report the Chang'an Hospital demonstrated healthy growth during the first half of 2012. Total revenue for Chang'an Hospital was RMB185.5 million, an increase of 57.8% over the first half of 2011. We expect this growth momentum will continue in the future as the basic medical insurance program covers larger population and Chang'an Hospital continues to build a specialty in cancer treatment as it signed the strategic alliance with (Fox Taste), a leading cancer treatment institution in the US. Also, in the press release, we have updated our guidance for second half of 2012 fiscal year as follows. Net revenues from the current network business of RMB220 million to RMB240 million and revenues from Chang'an Hospital of RMB190 million to RMB210 million, reflecting six months of financial results and network capital expenditures of RMB80 million to RMB120 million, primarily on purchasing new equipment for new centers. Before I open up for questions, I would like to add a few words on our account receivable situation. Since the beginning of the year, we have emphasized the importance of AR collection as a key performance measure for our operating team. We are very pleased to see the measures and taking effect. The AR days have decreased significantly from 201 days in Q1 to 159 days in Q2. We will continue strengthening our collection efforts in order to lower the DSO level for the remainder of the year. Overall, we feel confident about our growth and as evidenced by our improved business and the financial results. Now, we would like to open the call to questions. Operator?

The question-and-answer session of this conference call will start in a moment. (Operator Instructions) Your first question comes from the line of Isabella Hau – Morgan Stanley.

So my first question is regarding the improvement of your gross margin. You mentioned that the cost control is effecting this and have revenue contribution from the new center. Can you elaborate a little bit, give us a little bit more detail on those two things?

As you know, we have initiated the cost control measures at the beginning of the year and we're starting to see these measures taking effect. So what we have done is we set up very strict line-by-line cost targets for each of our centers in our network and during the first half of the year we have seen that the operating costs are related to the centers, including the consumables, the center-related direct expenses and center-related personnel and other expenses. The cost ratio has seen an improvement over the same period last year and this also – the improvement of our gross margin will come from two sides. On the one hand is our cost control measures, which means we are going to maintain our cost ratio for each center and gradually lower (inaudible). And on the other hand, we're going to improve the revenue mix of our business, which means that we're trying to further enhance the performance of those new added centers. So by the first half of 2012, out of our 133 centers we have a total of 21 centers that open less than a year. So these centers we have seen very positive signs of our operation. For instance, the (inaudible) center based in Shanghai, which we have announced earlier this year, has seen very positive operating results. But on the other hand, we have also a couple centers that are still lagging behind, experiencing a longer-than-normal ramping up period. So once we improve the performance of those centers, we will see further improvement of our gross margin on the group level. So the gross margin level for this quarter is the highest we have seen during the first – in the last six quarters. So we expect that the gross margin level will maintain this level – around this level for the remainder of the year.

So for the gross margin and you said you're going to – you expect to maintain this level, you mean at 68.7% for the whole year?

Of course, for the whole year projection, probably we are going to see some volatility but we expect that the gross margin will be around this level, maybe a little bit lower but not too much.

(Operator Instructions) Your next question comes from the line of Sean Wu – JPMorgan.

I have a question that going back to your (inaudible) call 2011 release you mentioned because you are in the process of negotiating with Chang'an Hospital for the transaction, so you decided not to recognize certain service revenue with Chang'an Hospital. Now that Chang'an has been closed, are you going to go back to reinstate something or are you just say, OK, that is part of the revenue we will no longer recognize, so this is some kind of agreement that you will cancel going forward?

So between our cooperation with Chang'an Hospital prior to the signing of the acquisition before closing the acquisition in the first half of the year, we have – there is a management agreement between Concord Medical and the Chang'an Hospital and we're entitled to receive some management fee and certain profit sharing of Chang'an Hospital. And since that we have closed the acquisition and we have now recognized those revenues, since the beginning of the year. So the first two quarters of this year you've seen that the management services revenue – compared to the last year – there is a difference and the difference mostly lies in that revenue related to Chang'an. Looking forward, we will not have a separate recognition of those revenues. So first of all, we plan to consolidate the financial results of Chang'an Hospital since the second half of – since the third quarter of 2012 and, secondly, we have not signed a new management agreement with Chang'an since last year. So that part f revenue will not be recognized forwards.

Can I just follow-up with another question. You have this (sick) center also at Chang'an Hospital right?

Yes.

So before that, you were leasing management or it's only for management and from here on? So it costs you only 50%, 52% of Chang'an Hospital. So what the accounting should be like going forward? So you are going to recognize your profit share and also you will take 52% of the profit share given to the hospital and how do you recognize (inaudible), et cetera?

Those fixed equipments were invested by Concord Medical and has been in operation in Chang'an Hospital for quite a while. So moving forward, we have signed a new – we're going to treat those (six) increments as a financial lease property so that Chang'an Hospital will be paying us fixed sum of financial lease revenue for us quarterly. So there will be a very straightforward payment by quarter moving forward and we plan to recoup all the investment in the near future.

(Operator Instructions) Your next question comes from the line of Isabella Hau – Morgan Stanley.

My next question comes about the center closures. I noticed that you have closed two centers during the second Q. And what is the reason behind closure and do you expect to close more new centers going forward?

So we have closed two centers and these two centers, in fact, have different circumstances. Once center is purely contract expiration, so one of those centers has been in operation for almost 20 years and the contracts just expired and we had a very successful cooperation with the hospital partner for the past 20 years and we decided to close the center because the hospital decided to move to a different direction. So that's contract expiration. Another one is relatively small center based on Beijing and that center has been – has shown very poor financial results for quite a while, so we decided to close that center and recouped the investment plus a little bit of gain. So we didn't incur any loss – any asset disposal loss in that case. So moving forward, we are going to – so the centers in our networks – the average life for centers still around seven years, so these centers, most of them are going to operate normally and to really just contribute to our revenue and our profit. But there are also some centers that are seeing unsatisfactory results, so we either – we'll take measures to turn those centers' performances around or in particular cases when we decide to dispose some of those centers. And the basis for those disposals will be our book value at that time.

So can I say – what kind of criteria for you to close a center for like say if a center has been underperformed for how long for you to decide you want to close it.

We have a specific guideline, yes, but what we have done so far is we have ranked the centers' network by return on investment, so those centers that keep ranked at the bottom 20, among the bottom 20 will be reviewed very carefully. And if we decide that those centers are seeing unsatisfactory results, we may decide to close those centers. But these are very separate cases. We have not – we don't have very specific plans to close any other center in the near future.

Also regarding for the centers open, and what's your plan for the number of centers you will be add in the second half of next year?

We have – in the press release we have disclosed that. We have 36 outstanding contracts. Those contracts are in different stages of being ready for open. So during the second half of the year – at this time, we don't have a specific number of centers to be opened but most likely we can open probably around 10 centers in the second half of the year. But that may change as we're moving forward because opening of each center will require cooperation and partnership with our hospital partner as well. So there is a lot of factors that are beyond our own control.

How about the number of centers that will be open for next year? Do we have any plan yet?

Those 36 centers most likely will be open within the next year, so a safe estimate will be that these 36 centers will be added to our network before the end of next year. So quarter-by-quarter it's very hard to pinpoint the number o centers to be opened.

Your next question comes from the line of Sean Wu – JPMorgan.

I think we've talked about this before like for your hospital (inaudible) you may need to have a revenue about RMB300 million. It looks like you will be (inaudible) money RMB300 million this year. So what have you been EBITDA margin, the operating margin we should assume for the second half of the year of your hospital operations?

So the Chang'an Hospital has seen very strong growth. The first half of the year is – the total revenue is over RMB180 million and has been growing nearly 60% year-over-year. So definitely the Chang'an Hospital will be profitable this year. So what will be the profit, the exact number? We are still – it's a little bit early for us to discuss at this moment. The EBITDA margin – the operating margin and the EBITDA margin, our own estimate, the EBITDA margin will be probably between 15% to 18% and the operating margin will be about – let me see – about 12% or so. So that's our own estimate. But these numbers are subject to audit and we have – it will be better for us to discuss financial results of Chang'an Hospital at the end of this quarter.

So you – I recall you were trying to add more beds to this hospital. How is this process going? Are we there yet or we are still adding beds? Clearly your growth year-over-year is very strong. That's because you have more beds or just some somehow you are getting more patients? And then how many of those patients are still paying? Do they get reimbursed well?

Let me talk about the last part of the question first and then I'll shift the question to Dr. Yang and he can give you some more color on that. For the reimbursement system, now it's more like a set – it's more like a set, I will say, fixed reimbursement quota. The way it works is those patients, there will be like a government (inaudible). And what they do is they will have an estimate of the number of insurance patients that are going to visit each hospital on an annual basis. And now most hospitals are going to receive those reimbursements half of the time. So the reimbursements on social insurance programs, at least in Chang'an Hospital, is very smooth. So we have not seen large amount of receivables from the insurance so far this year. But of course, the policy may change abruptly, so we're going to monitor that carefully and we discussed this with hospital's management on a regular basis about their – we monitor their financial results very closely. And as for the first part of the question, as for whether Chang'an Hospital plans to add more beds, let me turn the call over to Dr. Yang.

(Speaking Chinese).

I was asking whether you have complete your second phase. I know you were trying to expand the hospital beds. You were trying to see originally you would separate the (inaudible) out of oncology surgery – oncology like (inaudible) elevation center from the rest, so you have two phases. So have you finished – completed a second phase? So how many total beds do you have now?

So Sean, basically the current number of patient beds in Chang'an Hospital is 1100 and this has been completed in the last year. So Concord Medical has taken the management services of Chang'an Hospital since 2009. Within the last three years, the growth has been strong for each and every year. For under the current number of patient beds, we expect continuing the strong growth next year, too.

(Operator Instructions) Your next question comes from the line of (Mital Kraus) – Private Investor. (Mital Kraus): So I had a question on Chang'an Hospital but it got answered already. But I just wanted to thank you for doing the stock repurchasing. I think investing in stocks is a great investment at this time. I believe the stock is quite undervalued and I just wanted to thank you for your efforts on that and wish you luck for the next quarter.

(Operator Instructions) Your next question comes from the line of Isabella Hau – Morgan Stanley.

I will follow up on the higher G&A expenses and can you explain a little bit more for your inquiries (inaudible) and headquarter and what's, again, a level going forward?

Because, as you know, the overall pricing environment in China is really on the uptick, so during this quarter, our general and administrative expenses did see some growth. This is more like – this growth will be more like specific for this quarter because, for instance, we have renewed our rent agreement for our headquarters here in Beijing. The price has seen substantial significant increase over the previous term. And also that during this quarter we have included some web-based marketing expenses, so we have set up a team to do remote medicine as well as those online use internet as marketing tool for our services. So during this quarter we have incurred a total expense of about RMB2.5 million. So we believe that this is investment is going to bring us value in the near future but it is still in the investment stage. So moving forward, it is (inaudible) on a quarterly basis we're going to spend probably about the same amount on the web-based marketing expenses and but other than that we do not expect to see substantial increase for the other items in our general and administrative expenses.

And so in that case, previously you said you expect the gross margin going to be gradually improve. And for the G&A expenses, the higher G&A expenses will be lower. And so what's your operating margin expectation for this year?

We have not really issued guidance specific margin levels because, as you know, the pricing level for operating in China is really seeing a lot of change and mostly the inflation is reflecting in all aspects of our business for our operation in each center as well as to our headquarter-related expenses. Almost all expense items such as rent, personnel, travel and all those have seen increases over the same period last year. So but on the – so we – to repeat, we will strengthen our cost control measures. But so far our cost control measures are mostly related to the centers, so that is part of the reason we have seen the gross margin stabilizing and improving. So we're at the next stage we need to look at our general and administrative expenses. So if it goes up too fast, probably we are going to look at those expense items also.

(Operator instructions) There are no further questions at this time. We are now approaching the end of the conference call. I will now turn the call over to Concord Medical's Investor Relations Manager, Tony Tian for his closing remarks.

Once again, thank you all very much for joining us today. Please do not hesitate to contact us if you have any further questions. Thank you for your continued support.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.