Incident: 1) The company released its 2010 annual report. During the reporting period, the company achieved operating income of 6.638 billion yuan, an increase of 30.75%; net profit attributable to shareholders of listed companies was 424 billion yuan, an increase of 35.00% over the previous year; and earnings per share was 0.20 yuan. The company's 2010 results were in line with our previous expectations. 2) Zhejiang Inter Pharmaceutical, a holding subsidiary of the company, plans to sign an “Industrial Project Investment Agreement” with the Jinhua Wucheng Xincheng District Industrial Development and Construction Management Committee to acquire land in Jinhua City's Wucheng Xincheng District, and plans to invest 210 million yuan to build the Jinhua Inter Modern Pharmaceutical Distribution Center. Key investment points: Commercial mergers and acquisitions and network decline help accelerate performance. The company's revenue growth rate in 2010 hit a new high since its backdoor listing, while the net profit growth rate also remained high. On the one hand, Ningbo Cixi Pharmaceutical and Herbal Medicine was consolidated in January 2010, contributing more than 200 million yuan in annual revenue; on the other hand, on the basis of consolidating the original market for hospitals above level 2, the company further developed the grass-roots market and realized the decline of the network. As the company's commercial mergers and acquisitions and the network sinks further, the company's performance is expected to grow at an accelerated pace. The company's operating efficiency has been steadily improving. In 2011, Inter Pharmaceuticals's gross sales margin and net sales margin reached 5.45% and 1.32% respectively, and the company's operating efficiency improved steadily. This is related to the company's long-standing market positioning characterized by famous and innovative products. Famous new specialty drugs are mainly aimed at hospitals above level 2. The unit price is often high, the price fluctuation is small, and the corresponding cost ratio is small. Therefore, the company has maintained a high level of profit, and the net interest rate is at the leading level in the industry. Furthermore, the company's business expansion is based on the Zhejiang market and has great performance flexibility, which is expected to further improve the company's operating efficiency. Full coverage within the province is beginning to take shape, and mergers and restructuring are about to enter the harvest period. Since 2010, the company has successively acquired or planned to acquire Ningbo Cixi Pharmaceutical (renamed Ningbo Inter Pharmaceutical), Wenzhou Supply and Marketing, and Quzhou Hays Pharmaceuticals. Coupled with the long-term accumulation of the company's traditional dominant region, the Hangjiahu region, the full coverage of Inter Pharmaceuticals in the province has begun to take shape, and its radiation influence on medical institutions in the province has been further strengthened. Furthermore, the modern logistics centers owned by the company and under construction and planning are located in Hangzhou, Ningbo, Taizhou and Jinhua, respectively, covering Hangjiahu, eastern Zhejiang, and southwest Zhejiang, and the logistics radiation capacity has been greatly improved. The company plans to further improve its commercial layout in the province. Currently, the sale of the company's Intel property is nearing completion, which will bring abundant cash flow to the company, thereby supporting the company's further business expansion, and the merger and restructuring process will continue to accelerate. We believe that due to the scarcity of high-quality targets, 2010-2011 will be the peak period of mergers and restructuring of companies, and due to corporate mergers and acquisitions, 2011-2012 will be a corresponding period for contributing to performance after mergers and acquisitions. The pharmaceutical market may become a new driving force for the company's performance growth. The country has introduced two major policies for the essential drug market: an essential drug procurement mechanism and a compensation mechanism for primary medical institutions. With the gradual implementation of the policies, the two major obstacles to the promotion of the essential drug system (inadequate compensation by primary medical institutions and chaotic bidding for essential drugs) will be broken through, and the basic drug market may show a volumetric trend in the next 2-3 years. Take Zhejiang Province as an example. The market size of basic pharmaceuticals was around 10 billion in 2010, accounting for about 20% of the total sales scale of pharmaceuticals. There is still plenty of room for this ratio to increase in the future. To this end, the company is already planning ahead. On the one hand, the company has implemented a logistics strategy and plans to establish new modern pharmaceutical logistics centers in Cixi, Ningbo, Linhai, and Jinhua to strengthen the logistics coverage capacity of the entire province; on the other hand, the company plans to acquire municipal pharmaceutical commercial enterprises in mainland China (such as Hays Pharmaceuticals, etc.) to obtain channel resources from the grass-roots market and gradually sink the network. The company has only just started, and the market space is still huge, and it is expected to become a new engine for performance growth. Profit forecasts and investment ratings do not take into account Intel property disposal proceeds. We forecast Inter Group EPS of 0.29 yuan, 0.39 yuan, and 0.53 yuan respectively in 2010-2012. We believe that in 2011-2012, the company will enter the peak merger period of mergers and restructuring companies, and at a time when the company is rapidly expanding to develop the primary pharmaceutical market, the company's performance growth is about to accelerate. We maintain the company's “increase in holdings” investment rating, with a target price of 13.64 yuan unchanged for 6 months. Risk warning: epitaxial mergers and acquisitions are progressing slowly; basic drug policies are not in place.