Incident: In 2014, operating income and net profit after non-deducting net profit were 1.25 billion yuan and 0.3 billion yuan respectively, up -3.9% and -9.0% year on year. The 2014 Q4 operating income and net profit after deducting non-net profit were 380 million yuan and 0.2 billion yuan respectively, up -5.1% and 25% year on year. The company's product structure has been adjusted, and gross margin has gradually increased. In 2014, revenue fell 3.9% year on year. There are two main reasons: 1) The company began to adjust the existing product structure, reduce sales volume of low and negative margin products, focus on cultivating the market for exclusive varieties such as Double Gold Combined Agent and Shuanghuanglian Oral Liquid (children's type), and implemented a reserve price sales model for some product specifications. The structural adjustment caused the company's sales revenue to decline; 2) The holding subsidiary carried out new GSP certification and GMP transformation. At the same time, downstream pharmaceutical dealers concentrated on new GSP certification, etc., which caused the company's drug sales to decline. We believe that the current GSP certification of downstream dealers has been partially completed, and with the new leader and the merger of Tongjuntang's remaining shares, the revenue growth rate in 2015 was relatively rapid. The growth rate of net profit after deducting non-net profit in 2014 was about 5 percentage points lower than the revenue growth rate. The main reason is that while revenue declined, the cost ratio for the period increased by about 0.5 percentage points. The company's overall gross margin situation was relatively good, increasing by about 0.7 percentage points. Specifically, as follows: 1) The gross margin of the pharmaceutical product distribution business increased significantly, increasing by about 2.5 percentage points, mainly because while controlling sales costs, Tongjuntang actively expanded the value-added business, such as valet concoction business; 2) The pharmaceutical manufacturing business implemented a reserve price sales model for some varieties and specifications, which led to a decline in the gross margin of this business segment by about 0.3 percentage points. Judging from the profit situation in a single quarter, net profit increased 25% in Q4 2014, and gross margin increased by about 7 percentage points. We judge that the company's product restructuring strategy in the pharmaceutical manufacturing sector and the cost control strategy in the pharmaceutical business sector have all achieved results. We believe that with the new leader and Tongjunge's total merger (the profit promises of the two in 2015 are not less than 32.93 million yuan and 28 million yuan, respectively), and the product restructuring of the company's original business will also be completed, profits will show a qualitative increase in 2015, and it is expected that it may exceed 100 million yuan. Tongjuntang's net profit margin is low, and there is plenty of room for improvement. Tongjuntang's current net profit margin is about 5%, which is far below the market average. Since there is a lot of room for improvement in the later stages, we believe that the performance in 2015-2017 is likely to exceed the promised performance (executives promised that the 2015-2017 net profit will not fall below 32.93 million, 37.73 million, and 41.27 million, respectively). After the company acquires 100% of Tongjuntang, we believe it will bring about the following changes: 1) expand the scale of the Chinese medicine tablet business and inject capital to supplement working capital; 2) use the company's perfect sales channels to boost Tongjuntang product sales growth; 3) the company and Tongjuntang's Chinese medicine industry will play a synergistic role. On the one hand, these measures will promote an increase in Tongjuntang's operating income, and on the other hand, they will increase gross margin and net profit margin, thereby improving overall performance; 4) The recent announcement of a strategic cooperation with the Henan Academy of Traditional Chinese Medicine will help the recruitment of experts at Tongjuntang Traditional Chinese Medicine Center and will also be a way to enhance Tongjuntang's high value-added services. The new leadership is growing rapidly and will complement the company's R&D strength. The new leader has advantages in technology, R&D and management, and its gross margin remains high at around 77%, which is higher than the industry level. This merger and acquisition can gain new leading technological advantages in pre-clinical and clinical drug research, and play a synergistic role with the company's chemical manufacturing business. At the same time, the company's abundant capital and marketing channels can be used to accelerate the development of the new leading business. The new leading business mainly focuses on products with high technical difficulty and high added value, mainly in high-incidence fields such as cardiovascular, neuropsychiatric, endocrinology, anti-infection, and anti-cancer. As the efficiency of drug approval by the National Drug Evaluation Center increases, the number of drugs applying for clinical trials will also rise. It is expected that the new leading performance in 15 and 16 years is likely to exceed the promised performance (new leading former executives promised, net profit for 2015-2017 will not fall below 28 million, 33.5 million, and 37 million, respectively). Profit forecasts and investment advice. The 2015-2017 EPS is expected to be 0.18 yuan, 0.22 yuan, and 0.28 yuan respectively, and the corresponding price-earnings ratios are 76 times, 60 times, and 47 times: the company's marketing network is gradually improving, and the new leader, Tongjuntang, etc. have stock price catalytic factors such as exceeding expectations, divestment of non-performing assets, and continued epitaxial expansion, maintaining a “buy” rating. Risk warning: Risks such as Tongjuntang's new leading performance promises may fall short of expectations, marketing promotion of pediatric compound chicken nigen chewables may be slower than expected, and bid price cuts.