Incident: On December 29, 2010, Inter Pharmaceutical, a subsidiary and main operating entity of Intel Group (000411), signed an “Investment Cooperation Agreement” with all shareholders of Wenzhou's supply and marketing, and will invest 29.9 million yuan to acquire 51% of Wenzhou's supply and marketing shares, of which 2011 million yuan will be used to acquire shares and 9.79 million yuan will be used to increase capital in the same proportion. After the acquisition is completed, Inter Pharmaceutical will become the controlling shareholder of Wenzhou's supply and marketing. The purchase price is quite reasonable. Regardless of the capital increase, the purchase price of 51% of Wenzhou's shares is 2011 million yuan, corresponding to the sales volume in 2009. The PE ratio of this acquisition is 5.4 times, and the market sales rate PS is 0.07 times, far lower than the market sales rate of Shanghai Pharmaceutical's recent acquisition of CITIC Pharmaceutical (0.83 times) and China Resources's acquisition of Suzhou Li'an (0.51 times). Considering the scale effect of the subject matter of the acquisition, we think the purchase price is quite reasonable. The acquisition will create synergies and increase EPS. As the second largest pharmaceutical commercial enterprise in Wenzhou, Wenzhou supply and marketing accounts for more than 85% of the pure sales business, and the net interest rate reached 1.25% in 2009. It is basically in line with the company. It is in line with the company's pure marketing business structure and “famous, new and special” business positioning, and is highly operational in the future. After the investment is completed, Inter Pharmaceutical will use Wenzhou supply and marketing as a platform to integrate all businesses in the Wenzhou region, and the operating efficiency in the Wenzhou region will be greatly improved. Considering that there are good synergies, we believe that the sales scale of supply and marketing in Wenzhou is expected to achieve rapid growth next year. With the merger on January 1, 2011, it is expected that the company's 2011 EPS will increase to 0.015-0.02 yuan, which is still quite obvious compared to the 2009 EPS of 0.15 yuan. This acquisition will further strengthen the company's leading position in the pharmaceutical business in Zhejiang Province and is of strategic significance. The subsidiary Internet Pharmaceutical is one of the two largest pharmaceutical businesses in Zhejiang Province, with a market share of 11.2% in 2009, which is only slightly lower than the 13.5% of Huadong Pharmaceutical. Compared to East China Pharmaceutical, where channels are mostly concentrated in the Hangjiahu region, Inter Pharmaceutical's advantage lies in its wide channel coverage, which has basically achieved full coverage of hospitals above the county level. Meanwhile, Wenzhou supply and marketing is the second largest pharmaceutical commercial enterprise in Wenzhou, with a market share of about 1.3% in 2009. After controlling Wenzhou's supply and marketing, Inter Pharmaceutical will further tighten Huadong Pharmaceutical and strengthen its competitive advantage in southern Zhejiang, thus consolidating its leading position in Zhejiang Province, which is of strategic significance. The company's biggest focus in the future is that it has greater performance flexibility in the process of expansion within the province. Unlike pharmaceutical business giants such as Sinopharm and Shanghai Pharmaceutical, which are racing on a national scale, the company, as a commercial leader in Zhejiang Province, focuses on cultivating meticulously and painstaking internal skills in its own territory. Since drug bidding and distribution are carried out in provincial units, mergers and acquisitions within the provincial level have a more synergistic effect, which is conducive to the increase in net interest rates, so the Intel Group will first benefit from increased concentration driven by industry policies, and the performance flexibility of external mergers and acquisitions is greater. Profit forecast and investment rating: We maintain our previous profit forecast, that is, regardless of epitaxial expansion and property disposal income, Intel Group achieved EPS of $0.21, $0.27, and $0.38, respectively in 2010-2012. We believe that the company is based in the Zhejiang market, that its leading position has been consolidated, and that it will have strong performance elasticity in the future in the wave of mergers and restructuring in the industry. With the beginning of the terminal channel battle triggered by Shanghai Pharmaceutical's acquisition of CITIC Pharmaceutical and China Resources's acquisition of Suzhou Li'an, the valuation of pharmaceutical commercial companies is expected to soar. The current market value of just over 2 billion yuan cannot reflect the company's huge terminal channel value and acquisition value, so we continue to maintain the company's “buy” investment rating, with a target price of 16.35 yuan for 6-12 months. At present, after the company's stock price has been drastically adjusted, the investment value has already been shown, so it is possible to take the opportunity to strategically open positions.