Incident: On December 31, 2010, all shareholders of Zhejiang Inter Pharmaceutical Co., Ltd. (“Enter Pharmaceutical”) and Zhejiang Hays Pharmaceutical Co., Ltd. (“Hays Pharmaceutical”) signed a “Capital Increase and Stock Expansion Agreement”, investing 14.6545 million yuan in cash and investing 49% of Hays Pharmaceutical's shares through capital increase and stock expansion. 1. Invest in Hays Pharmaceuticals to launch the first merger and acquisition in 2011. Since the formulation of the three-year plan (2010-2012), the company has maintained a high level of enthusiasm for foreign strategic mergers and acquisitions. In 2010, the company successively acquired Ningbo Inter Pharmaceutical and Wenzhou Pharmaceutical Supply and Marketing Co., Ltd. to initially complete the strategic layout for southern and eastern Zhejiang. In 2011, Quzhou was one of the key regions for corporate mergers and acquisitions. Successful participation in Hays Pharmaceuticals is the first step for the company to enter the southwest Zhejiang market and complete the strategic layout of the province. 2. Regional advantages complement each other, and the merger and acquisition strategy is of great significance. Although the company's distribution network reaches the whole province, its market share is not uniform across regions. Quzhou is located in southwest Zhejiang, and the company's share in this region has not been large. Hays Pharmaceutical's logistics distribution base is located in Quzhou, and its distribution coverage mainly covers southwest Zhejiang. The current participation in Hays Pharmaceuticals will strongly complement the company's original business in terms of geography. At the same time, Hays Pharmaceutical has more than 10 general agent varieties nationwide, and nearly 3,000 general agent varieties and regional agent varieties in Zhejiang Province. There is some complementarity between the two sides in terms of agency varieties. 3. The target of high-quality mergers and acquisitions has room for growth. Hays Pharmaceuticals' revenue for the first three quarters of 2010 was 71.51 million yuan, 1.6 times the revenue for the full year of last year. The net profit was 1.48 million yuan, and the corresponding net profit margin was 2.07%, higher than the company's level of 1.25% in 2009. As a target for mergers and acquisitions, Hays Pharmaceuticals has great advantages in terms of both growth and profitability. As a private enterprise, the bottleneck for Hays Pharmaceuticals is a lack of capital. After the company invests in shares, Hays Pharmaceutical will receive more financial support, which will help it further expand the market. 4. The purchase price is reasonable. The company's current purchase price is 14.654,500 yuan, equivalent to 1.53 yuan per share, the corresponding price-earnings ratio is 34.25 times, and the market sales rate is 0.67 times. Compared with the market sales rate of Shanghai Pharmaceutical's recent acquisition of CITIC Pharmaceutical, the purchase price is still within a reasonable range. 5. Reserve the right to increase capital unilaterally, and there is a possibility of holding in the future. The agreement between the two parties stipulates that within one year from January 1, 2014, the company has the right to unilaterally increase the capital of Hays Pharmaceutical, increasing the share ratio of Hays Pharmaceuticals from 49% to 51%. The agreement will help the company to hold shares in Hays Pharma in the future. 6. Profit forecast and rating. Regardless of the impact of this merger and acquisition on the company's performance, we expect the company's EPS for 2010-2012 to be 0.20 yuan, 0.28 yuan, and 0.37 yuan. Based on yesterday's closing price, the corresponding price-earnings ratio is 51 times, 37 times, and 28 times. 2011 is the second year the company has implemented the three-year plan, and will maintain a high level of enthusiasm for foreign mergers and acquisitions. As the scale of revenue expands, the value of the company's commercial mergers and acquisitions will gradually become apparent, maintaining the company's “short term _ recommendation, long term _ A” rating.