Incident: Recently, the company announced that it plans to acquire Zhichu Pharmaceutical in Yantai for 1.5 billion yuan by issuing new shares and raising cash. The acquisition of Tianheng Pharmaceutical has tasted sweetness, and continued external acquisitions have not wavered. The company continues to extend mergers and acquisitions to prevent a decline in performance due to instability in the main business market. The company's previous acquisition of Ningbo Tianheng Pharmaceutical contributed to the company's revenue and profit growth in the first three quarters. The company's revenue in the first three quarters of 2015 increased by 55.3% year-on-year, double the growth rate of the same period last year. The main reason is Tianheng Pharmaceutical's combined income. It is expected that the company's revenue and net profit growth throughout 2015 will mainly depend on Tianheng Pharmaceutical. The size of Yantai Zichu Pharmaceutical is roughly the same as the company's current size. After the acquisition is successful, it is possible to rebuild Fuan Pharmaceutical. Enrich the company's range of antibiotics and increase its ability to withstand market risks. Under the influence of the continuous resistance restriction policy, the prices of the company's main active ingredients, such as aztreonam, sulfampicillin, and ticacillin, have been affected by the continued turmoil in the market, and prices have declined, which has seriously affected the company's performance. Zhichu Pharmaceutical mainly sells antibiotic APIs such as gentamicin and myleukomycin, etc., and the API business accounted for more than 85% of revenue in 2013/2014. In 2014, the company had revenue of 590 million yuan and net profit of 65 million. Its profitability exceeded the average level of the antibiotic API industry and reached the profitability level of chemical preparations. The 2015-2017 performance promises are not less than 80 million yuan, 100 million yuan, and 120 million yuan respectively. After the acquisition is successful, the company's operating income and net profit will be greatly increased. In addition to this, Zhichu Pharmaceutical has production approvals for more than 80 APIs and preparations for antibiotics and specialty drugs, effectively complementing the company's product line. Self-developed specialty drugs were blocked, and extended acquisitions supported half of the company. The company and subsidiary Qingyutang recently passively withdrew three self-developed varieties, namely tovalaptan tablets, imatinib mesylate tablets, and imatinib mesylate capsules. These three varieties are the most advanced projects among the company's self-developed drugs. They were originally planned to be approved for marketing within the next 2-3 years, with annual sales volume of 3-5 million yuan after listing. Although this withdrawal will not affect current operations, it will definitely cause losses to future performance. In the case of self-developed specialty drug types being blocked, extended acquisitions have made up for the lack of performance caused by the blocking of approval of new varieties, and the impact of the lack of endogenous growth has been minimized. Performance forecast and valuation: Regardless of the impact of the latest extended acquisitions, we expect earnings per share for 2015-2017 to be 0.22 yuan, 0.28 yuan, and 0.33 yuan, with corresponding price-earnings ratios of 122 times, 107 times, and 79 times. We believe that with the effective implementation of the acquisition of Tianheng Pharmaceutical and future epitaxial expansion, the upgrading of the company's business structure has brought obvious results in improving performance. However, in the short term, since the main business is greatly affected by market fluctuations, it cannot be digested in the short term, and the “increase in holdings” rating is maintained. Risk warning: Drug price reduction risk, merger and acquisition enterprise integration risk.