Incident: 2015.12.23, the company announced the “Shanghai Kaibao Pharmaceutical Co., Ltd. invests in Shanghai Yizhong Biotechnology Co., Ltd. Capital increase agreement”, which intends to use overraised capital of 131 million yuan to increase Yizhong Biotech's capital. After the capital increase is completed, it will hold 20% of Yizhong Biotech's shares. The company is a research enterprise engaged in research and development of new dosage forms of anti-tumor drugs. The main product is “injectable paclitaxel micelle”. The product entered phase III clinical trials on 2015.4, and the indication is non-small cell lung cancer. Comment: The large acquisition of excellent oncology drugs helped the company grow steadily over the medium to long term. In an environment of severe bidding and fee control, traditional Chinese medicine injection companies are facing unprecedented pressure on their performance. Shanghai Kaibao, which mainly has products on the list of products, still faces this systemic risk and pressure in this environment because of the singleness of its products. We believe that active and steady products and business expansion will be the company's main driving force for the next 2-3 years: Xinyi's acquisition+establishment of an industrial investment fund shows a signal of the company's active expansion and expansion. We expect that the company will continue to rapidly enrich its product line and enhance profitability through flexible industrial investment methods such as shareholding and mergers and acquisitions. Maintain the “Overweight” rating. Increase capital and participate in excellent research and development companies to obtain anti-tumor drugs with definite prospects. This time, the company plans to use the overraised capital of 131 million yuan to increase Yizhong Biotech's capital. After the capital increase is completed, it will hold 20% of Yizhong Biotech's shares. The company is a research enterprise engaged in research and development of new dosage forms of anti-tumor drugs. The main product is the 5 types of new drug “paclitaxel for injection”. This product entered phase III clinical trials in 2015.4, and the indication is non-small cell lung cancer. 1) The clinical comparative advantage of paclitaxel micelles is obvious. Paclitaxel, as a broad-spectrum anti-tumor drug, is used in huge clinical doses, and is one of the most important drugs in the field of cancer chemotherapy in the past 15-20 years. Paclitaxel micellar products independently developed by the company are not inferior to other dosage forms such as paclitaxel albumin for clinical use, but are also extremely cost leading; compared with traditional dosage forms, they eliminate or reduce disadvantages such as allergies and hematologic toxicity, and show significantly improved human tolerability, thus showing better anti-tumor effects. The project was classified by the State Drug Administration as a “special, targeted preparation, and included in the joint conference decision to accelerate varieties” in the new drug review. 2) Further enriching the new areas of the company's products is expected to help the company's medium- to long-term performance grow steadily. Currently, this drug is in phase III clinical trials. We believe that with this product, the company is expected to quickly enter the field of oncology drugs and build the company's medium- to long-term competitive product hierarchy. Under the pressure of tenders, sales of phlegm and fever-clearing injections increased slightly, which was basically the same as last year. 1) Basic drug tenders promote sales volume: Under severe bidding pressure from Anhui, Hunan, Zhejiang and other places, sales in the first half of the year were basically the same as last year. We think this is a systemic risk faced by the whole range of traditional Chinese medicine injections. In particular, large varieties such as Phlegm Heqing, Hot Doxin, and Ginseng Fuzheng, etc., are under pressure from medical insurance fees, are under greater pressure on performance. We believe that Guangdong, Xinjiang, Guangxi, Liaoning, Jilin, Shandong, Henan, Anhui, Zhejiang and other places where phlegm heqing has already entered the basic drug supplement catalogue will accelerate release to make up for the pressure on its price. On the other hand, with the diversification and adjustment of the company's sales model, the basic drug market will gradually improve its performance. 2) There is still no risk of getting rid of a single product in the short term: Currently, phlegm heqing injections account for 91% of the company's overall revenue. Despite the rapid expansion of the base drug market, there are still policy risks such as price cuts (such as Zhejiang Province, which has already been implemented). If no new varieties are introduced in a short period of time, there is still a risk that the company's performance growth rate will slow down. We believe that 2014 was a year for the company to lay the foundation for the company. The third phase of production, product series development and harvest, and continued implementation of mergers and acquisitions have laid a solid foundation for future growth. However, when analyzing the company's short-term performance in detail, most of the varieties acquired by the company are in the clinical research stage. Although there are Class 1.1 drugs (anti-depressive) such as Youxindin, there is still uncertainty about future post-marketing promotion. We believe that in 2015-16, the pharmaceutical sector underwent frequent mergers and acquisitions under policy pressure, and is expected to further accelerate the process of mergers and acquisitions through own capital, overraised balances, capital market financing, etc., to create a product line that supports the company's steady long-term growth. Follow-up focus: Sales diversification reform+M&A expansion. Although on the basis of academic promotion of phlegm fever-clearing injections, the company has developed varieties such as phlegm fever-clearing capsules, oral liquid, and 5ml injections (the capsules were put into production at the end of 2014.4, and the self-employed plus investment model is being promoted, with daily usage costs exceeding 100 yuan), we believe that the promotion of new products will inevitably experience a gradual pace of release, and it will not be possible to make up for the performance pressure brought about by the slowdown in the growth rate of phlegm fevers in a short period of time. We expect that the company's business will maintain a steady growth trend with the diversification of the company's sales model, development of the basic drug market, and mergers and acquisitions. Profit forecast: Considering the pressure of the policy environment for the next 2-3 years, the company's profit forecast was slightly lowered. The company's 2015-2017 revenue is estimated to be 16.58, 19.39, and 2,227 billion yuan, respectively, with growth rates of 11.96%, 16.97%, and 14.85% respectively, and net profit attributable to the parent company of 3.74, 3.99 and 447 million yuan respectively, with year-on-year growth rates of 7.11%, 6.54% and 12.23%, corresponding to the 2015-17 diluted EPS of 0.45, 0.48, and 0.54 yuan. Considering the substantial progress of the company's merger and acquisition process, a certain valuation premium was given for 2016, 35-40PE (sector average 31.5PE), with a target price range of 16.8-19.2 yuan. Currently, the company's stock price corresponds to 2016 30PE, giving it an “increase in holdings” rating. Since the second half of 2014, we have suggested that if the company relies on a single type of phlegm clearing injection, it is very difficult to achieve a breakthrough in market value from 10 billion to 20 billion in the short term. Even during the bull market craze, in 2015.5 we still gave a rational interpretation of whether the company can surpass 20 billion dollars in market capitalization by relying on this single type. Now, with the systemic impact of tenders, that leap forward is even more difficult. Currently, the new product release progress is slightly lower than expected. We will continue to monitor the progress of the company's mergers and acquisitions and the new product launch process and development progress. Risk warning: New product promotion falls short of expectations, risk of price reduction of traditional Chinese medicines, new product pricing affects promotion