1. The sharp year-on-year increase in performance in 2010 is in line with expectations. In 2010, the company expects net profit of about 40 to 50 million yuan, a year-on-year increase of 74%-117%, and EPS of about 0.154-0.192 yuan. The company actively adjusted its product structure and marketing strategy and expanded product sales, resulting in a year-on-year increase in net profit due to a year-on-year increase in the company's operating income. 2. Cash dividends increase equity investment income. In 2010, the company received a cash dividend of 3,669,750 yuan from the participating company Huishang Bank Co., Ltd., and the company held 0.45% of its shares; it received a cash dividend of 20,000 yuan from the participating company Resistor Technology Limited (RT). RT is a foreign shareholder of Jiangsu Jiangshan Pharmaceutical Co., Ltd., a Sino-foreign joint venture. It holds 23.78% of Jiangshan Pharmaceutical's shares, and Fengyuan Pharmaceutical holds 8.41% of RT's shares. 3. Leading local pharmaceutical enterprises will continue to benefit from the release of primary medical demand. The company is a leading pharmaceutical industry and commercial enterprise in Anhui Province, and has formed a general medicine product line represented by large infusions. Benefiting from the release of primary medical demand, the sales scale has been further expanded this year. In our December 6 report “Removing the Insufficiency of Compensation, Advancement of the Essential Drug System Is Expected to Accelerate”, we pointed out that the essential drug system concerns the success or failure of medical reform, and the government will definitely promote it effectively. The government has refined compensation mechanism measures for primary health care institutions. In order to further promote the essential drug system and remove the barriers to lack of compensation, we are optimistic that the market expansion and industry growth brought about by the advancement of the essential drug system will continue to benefit the company as a leading pharmaceutical enterprise in Anhui Province. 4. Be optimistic about the development prospects of anti-cancer implants. In July of this year, the company signed a “Joint Venture Contract” with Anhui Zhongren Technology to enter the field of anti-cancer implants. Zhongren Technology uses patented technology, clinical approvals, and all production technology related to cisplatin and methotrexate anti-cancer implants as funding. It is expected that “sustained-release cisplatin for implants” will be marketed and sold in the second half of 2012, and “sustained-release methotrexate for implants” will be marketed and sold in the second half of 2013. The new product can not only reduce the systemic toxic response of anti-cancer drugs, but also selectively increase drug concentrations in the tumor area and enhance the therapeutic effects of anti-cancer drugs, which is expected to become a new profit growth point. 5. Investment advice: recommendation (maintenance). We maintain our profit forecast for the company's 2010-2012 EPS of 0.2, 0.3, and 0.38 yuan. The corresponding PE is 55X, 36X, and 28X, respectively. We believe that the company, as a leader in general medicine in the region, has clearly benefited from medical reform and has long-term restructuring expectations; anti-cancer implants, as a more ideal route of administration, are expected to become a new profit growth point; we are optimistic about the company's future development prospects and long-term investment value, and maintain the “recommended” rating.