Key investment events: The company announced that in the first half of 2016, it achieved revenue of 430 million yuan, +114%; net profit of 63.99 million yuan, +102.7%; net profit after deduction of 61.09 million yuan, 93.9% year-on-year. Net operating cash flow - 64.35 million yuan, -337.8% year-on-year; EPS 0.31 yuan. Financial expenses have dragged down the company's headquarters performance in the short term, and the new peak CRO performance may exceed expectations throughout the year. In 2016, H1 achieved revenue of 430 million yuan, +114% year-on-year, and net profit of 63.99 million yuan, +102.7% year-on-year. Judging from the revenue structure: 1) The Division's chemical formulation business achieved revenue of 190 million yuan, +4.4% year-on-year, of which the non-anti-drug and antibiotic businesses achieved revenue of 93.13 million yuan and 101 million yuan respectively, which was +1.5% and 7.3% year-on-year respectively; 2) The new peak CRO business achieved revenue of 220 million yuan and net profit of 60.34 million yuan, and completed 56.8% of the promised performance for the full year of 2016, that is, the annual performance of the CRO business is expected to exceed expectations. In terms of profitability, after deducting CRO performance contributions, the headquarters achieved a net profit of about 3.7 million yuan in 2016 H1. The main reason was a sharp increase in the company's financial expenses. In 2015, the company's wholly-owned cash acquisition of Shanghai's new peak generated 700 million yuan in mergers and acquisitions loans, and 2016 H1 increased financial expenses by about 19 million yuan compared to the same period. With the funds raised in place, we believe that the impact on financial expenses is expected to be eliminated by the end of the third quarter and the beginning of the fourth quarter. Considering that the company won a total of new bids in 9 provinces during the reporting period and entered low-price drug online procurement in 12 provinces at the same time, we believe that driven by the elimination of the impact of financial expenses and the new winning bids, the performance of the company headquarters is expected to recover and develop rapidly in 2017. CRO has become the company's main strategic business, clearly benefiting from the new drug policy. The CRO industry is at the core of the pharmaceutical R&D industry chain and is indispensable for the development of new drugs. The domestic CRO industry is expected to expand rapidly, benefiting from the acceleration of consistency evaluation and approval of new drugs. The company strategically entered the CRO industry at the end of 2015. The wholly-owned Shanghai Xingaofeng is a CRO enterprise that provides research services for the entire industry chain covering pre-clinical research and clinical research. The company has accumulated services for more than 550 projects, of which more than 450 are innovative drug CRO projects. Currently, a total of about 330 projects have been implemented. The company has become one of the industry leaders in the field of innovative drug CRO services. During the reporting period, through the GRDP management system, Shanghai Xingaofeng planned, participated in, and formed GLP, GCP and GMP industry alliances, and actively prepared a consistency evaluation technology platform and a platform for medical research services and precision medical technology services, clearly benefiting new drug policies such as generic drug consistency evaluation and marketing licensor systems. Profit forecasts and investment advice. Considering the declining growth rate of the pharmaceutical business, we have slightly lowered our profit forecast. We expect the diluted EPS for 2016-2018 to be 0.53 yuan, 0.83 yuan, and 1.08 yuan respectively, corresponding to the current stock price PE of 61 times, 39 times, and 30 times, respectively. Considering that the performance constraints of the company headquarters are expected to be lifted, the scalability of the new peak CRO business is strong, and the company may have extended development expectations, we believe that the company's performance and valuation are expected to improve simultaneously, and we maintain the “buy” rating. Risk warning: CRO business expansion or failure to meet expectations, formulation bidding or price reduction risk, extension expansion or fall short of expectations.