Core opinion: 1. Incident Unnamed Pharmaceutical announced its 2016 semi-annual report. The company's revenue was 551 million yuan (+71.74%), of which the biopharmaceutical manufacturing revenue was 369 million yuan (+14.80%), the chemical raw materials and chemical products manufacturing revenue was 183 million yuan; net profit attributable to listed shareholders was 153 million yuan (+75.18%), net profit attributable to listed shareholders was 145 million yuan (+69.57%). The main reason for the increase in the company's performance was the increase in the scope of mergers during the reporting period due to the completion of a reverse acquisition in September 2015, and the increase in profits from Wanchang Technology's fine chemical products during the reporting period. Mouse nerve growth factor is the company's main product. Revenue during the reporting period was 344 million yuan, accounting for 62% of revenue, an increase of 18.27% over the previous year, and the growth rate slightly exceeded expectations. Interferon was affected by factors such as hospital terminal fee controls and tender price limits. Sales volume declined. Revenue was 225 million yuan, down 18.20% year on year, and gross profit margin was 44.82%, down 14.47 percentage points year on year, lower than market expectations. Overall revenue in the fine chemicals sector declined slightly year-on-year, but gross margin increased markedly, rising from 39.50% to 44.63%. 2. Our analysis and judgment (1) The steady growth of mouse nerve growth factors and guaranteed performance promises that injectable mouse nerve growth factor sales in the first half of the year were 344 million yuan, which is the company's main product. The product's trade name “Enjingfu” is a nerve damage repair drug. It is mainly used for various types of nerve damage such as brain injury, stroke, spinal cord injury, pediatric cerebral palsy, and optic nerve contusion. Enjingfu is the company's cash cow product. The competition pattern is good. Currently, only 4 companies compete, and the company first launched the product. According to the 2015 sample hospital data of the Southern Institute, Enjingfu's market share in 2015 was 28.47%, second only to Shu Taishen's 43%, higher than Hite Biotech's 24% and Livzon Group's 4%. The growth rate of Enjingfu in the first half of 2016 slightly exceeded expectations. The main reasons are: a. Enjingfu mainly sells in first-tier cities and less than half of second-tier cities, covering only more than 600 hospitals, and there is still room for growth; b. During the reporting period, the company adopted differentiated regional marketing management strategies, key market investment, and rapid investment in high-growth markets to ensure effective allocation of resources to the market; improve work processes, strengthen standardized sales management, standardize sales behavior, follow up process control, and establish a professional and efficient sales management system. Interferon is a product that the company acquired and merged with Tianjin Hualida in 2014. The trade name Anfulon has both antiviral and immunomodulatory effects. It is widely used clinically. It is commonly used in the treatment of acute and chronic viral hepatitis (type B, C), malignant tumors (hairy cell leukemia, chronic myeloid leukemia, lymphoma, etc.), multiple sclerosis, condyloma, and AIDS. Tianjin Hualida (currently unknown in Tianjin) is the first bioengineering company in China to engage in the production and sale of interferons, ranking first in market share in 2007. Since then, sales have declined year by year due to the original shareholders Gédio Investment Company in Amsterdam in the Netherlands and TEVA Pharmaceuticals in Israel intended to withdraw from the Chinese biopharmaceuticals sector, falling from number one in market share to number five in 2013, and production was only 30% of the design capacity. After the unknown acquisition, the sales team and distribution network were rebuilt and optimized, and sales gradually rebounded. According to the 2015 sample hospital data of the Southern Institute, Tianjin ranked fourth with an unnamed market share of 11%, behind Huaxin Biology, Xianling Baoya, and Zhaoke Biology, and ahead of Anke Biology and Beijing Kane. The first half of this year was affected by bidding and other policies. Sales volume declined, and production capacity utilization was not high, leading to a combined decline in revenue and gross margin. The company participated in 26.91% of Kexon Biotech to carry out the strategic layout of preventive vaccines. In 2015, Kexon Biotech had revenue of 385 million yuan and net profit of 49 million yuan. The main products were the hepatitis vaccine, including the inactivated hepatitis A vaccine “Kids” and the hepatitis A and B vaccine “Bellevue”. The total revenue of the two vaccines was 321 million yuan. The launch of new products is expected to drive Kexon Biotech's performance growth. In May 2016, the enterovirus type 71 inactivated vaccine (EV71 vaccine, trade name “Yilaifu”) was officially marketed and sold. The vaccination population was children aged 6 months to 3 years (completion of vaccination before 12 months of age is encouraged). The basic immunization procedure is 2 doses, 1 month apart, for the prevention of severe hand, foot, and mouth disease. It is a type 2 vaccine. The vaccination price for terminals sold locally in Beijing is 188 yuan/dose. Hand, foot, and mouth disease was included in the category C infectious disease of the former Ministry of Health in 2008. It is mainly transmitted through air, feces, etc. The average incidence rate between 2008 and 2015 was 147/100,000, 130,000 cases of severe illness were reported, and more than 3,300 people died; among them, the incidence level was the highest among 1-year-old children, with an annual incidence rate of over 3,000/100,000. Among hand, foot, and mouth cases of varying severity, such as mild illness, severe illness, and death, the EV71 composition ratio was 40%, 74%, and 93%, respectively. The EV71 vaccine is more than 90% effective in protecting against EV71-related hand, foot, and mouth disease. There are around 16 million births every year in our country, and the number of newborns is expected to rise to 20 million after the release of the second child. It is estimated that the vaccination rate of the EV71 vaccine can reach 20% during the incubation period. In the long run, with reference to vaccines such as oral rotavirus, the vaccination rate of this product can reach about 50%. Currently, the competition pattern for this product is good. There are only two companies on the market, namely the Institute of Medical Biology of the Chinese Academy of Medical Sciences (Kunming Institute) and Kexon Biotech; the EV71 vaccine developed by the Sinopharm Institute of Chinese Medicine (Beijing Weigu) and the Wuhan Institute of Biological Products completed phase III clinical trials in 2013. We predict that Kexon's EV71 vaccine will sell more than 1 million doses per year, corresponding to the company's revenue of more than 100 million; peak sales volume will be around 5 million doses, corresponding to the company's revenue of 500 million yuan; and Kexon's production capacity of 20 million doses, which can meet terminal demand. Kexing Biotech lost 34.04 million yuan in the first half of 2016, mainly affected by the Shandong vaccine incident since March. The evolution of self-media public opinion has had a significant impact on China's vaccine industry, leading to a marked decline in outpatient visits at vaccination sites. The country has also filed cases and investigated hundreds of people in the CDC system, changed vaccine circulation rules, and brought the entire industry to a freezing point. We believe that vaccine products are just needed. The impact was gradually digested in the first half of this year. Grassroots research shows that the current number of people vaccinated at terminals has recovered by 60-70%, and is expected to return to normal levels in the second half of the year. The company submitted a privatization deal offer to Kexon Biotech in February 2016. Currently, an unknown group of buyers and Kexing General Manager Yin Weidong have reached an agreement on privatization. The specific privatization plan, pace, and timing are still uncertain. Unnamed Pharmaceuticals and Biopharmaceuticals partially promised non-return net profit for 2016 and 2017 was 302 million yuan and 368 million yuan. It is expected that the steady growth of mouse nerve growth factors, the restoration of interferon marketing channels, and the launch of the new EV71 product will ensure that the company reaches its performance commitment targets. (2) The layout of monoclonal antibodies and insulin The long-term monoclonal antibody and insulin business is currently being incubated by the Group's subsidiaries, which are unknown in Anhui and unnamed in Jiangsu, respectively. In the reverse acquisition of Wanchang Technology, the Group promised to make Unnamed Pharmaceutical the only listing platform for the Unnamed Group in the pharmaceutical field. In the future, after the product is listed, it will be injected into listed companies. The specific injection conditions are as follows: Once Anhui and Jiangsu Weiming have obtained the necessary project establishment, EIA, land use, planning, and construction approvals for their pharmaceutical production projects, and have obtained pharmaceutical production licenses, GMP certification, and pharmaceutical production approvals, and have actually produced products and can be sold to the outside world, after an audit by accountants with securities qualifications hired by the listed company confirms that they have begun to achieve profit, the listed company has the right to immediately initiate the acquisition of unnamed shares in Anhui and unnamed shares in Jiangsu held by the unnamed shares held by the unnamed shares held by the unnamed shares in Anhui and unnamed shares in Jiangsu held by the unnamed shares held by the unnamed shares held by the unnamed shares in Anhui and unnamed shares in Jiangsu, and the purchase price is in accordance with the securities qualified to be employed by the above market companies Assessment The valuation value determined by the institution after evaluating the relevant equity is determined on the basis. The evaluation method used by the evaluation agency to evaluate Jiangsu Weiming's assets should be the same as the evaluation method determined in the evaluation report used by Weiming Biomedical Co., Ltd. to transfer Jiangsu Weiming's shares to Weiming Group in July 2014 to determine the transaction price, or use an evaluation method approved by both parties and in line with the requirements of relevant laws and regulatory authorities. Anhui Weiming (Anhui Weiming Biomedical Co., Ltd.) was established in the Hefei Bantang Bioeconomic Experimental Zone in August 2014, with the goal of building a world-leading antibody drug development and production base. At present, Anhui Weiming has purchased 4 types of antibody drugs. Of these, 3 have been purchased from Zhangjiang Biology, namely recombinant anti-CD25 human mouse chimeric monoclonal antibody injection (obtained a new drug certificate), recombinant anti-CD52 humanized monoclonal antibody injection (completed clinical phase 2), and recombinant anti-CD3 personalized monoclonal antibody injection (completed clinical phase 1). In addition, adalimumab has completed clinical review. The company also has 6 clinically approved products in the future. In terms of foreign cooperation, Anhui Weiming has signed a strategic cooperation agreement with American BioAtla, one of the world's leading antibody drug research and development institutions, to become the company's sole partner for fourth-generation antibody drugs in Greater China, focusing on developing the company's fourth-generation antibody technology platform - conditionally active biopharmaceuticals (CAB) platform. It has launched two fourth-generation antibody projects for anti-AXL antibodies (treatment of lung cancer and breast cancer) and anti-LAG-3 antibodies (immune checkpoint inhibition) under the CAB platform. Anhui Weiming has also collaborated with various research institutes including the Chinese University of Science and Technology and Nanjing Medical University to continue to develop new monoclonal antibodies based on the already collaborated LUNX monoclonal antibody, EpCAM monoclonal antibody, Trop-2 antibody, and C-met-doxorubicin antibody conjugate drugs, and continues to develop new monoclonal antibodies. Jiangsu Weiming (Jiangsu Weiming Biomedical Co., Ltd.) is a high-tech pharmaceutical company founded in Changzhou, Jiangsu in August 2012 by Weiming Group, which is 51% owned by Weiming Group. Its main business is the production and sale of recombinant human insulin and its analogues based on the development of new biological drugs. The company is committed to building the largest insulin enterprise by relying on core technology. The design production line can produce 500 kg of recombinant human insulin APIs and 10 million injections of human insulin per year. There is also a 1,500-square-meter quality control, pilot workshop and R&D laboratory. Currently, the raw materials for insulin have been sold, and preparations will also be marketed and sold domestically by obtaining drug licenses in the future. 3. The performance forecast for 2016-2018 EPS is expected to be 0.67, 0.82, and 1.01 yuan, respectively. The company has lofty ambitions. It uses biopharmaceuticals such as mouse nerve growth factor and fine chemical products as the main source of revenue, and dreams of biotechnology, monoclonal antibodies, and insulin can be expected in the long term. We are optimistic about the company's strategic layout, variety selection, and R&D capabilities, as well as Chairman Pan Aihua's vision and resource endowment, and believe that the company is expected to grow into a leading domestic biomedical enterprise. 4. Risks suggest the impact of hospital bid price cuts on interferon sales, and the impact of unbalanced vaccine channels on sales.