The company is expected to grow into a leading Chinese medicine formula granule enterprise in Zhejiang. Zhejiang Province has always been a major sales province for traditional Chinese medicine. With favorable policies such as the liberalization of medical insurance, the market for formula granules will enter a period of rapid growth. We judge that the company's subsidiary, Jingyuetang, will become the leader in the province. Its competitive advantages are reflected in: first, the company currently has more than 600 registered varieties of traditional Chinese medicine formula granules, which can basically meet the clinical formulation needs of medical institutions; second, in 2015, the company won the bid for the Zhejiang Traditional Chinese Medicine Formula Granule Research Special Fund, and obtained the “Pharmaceutical GMP Certificate” for traditional Chinese medicine formula granules in January 2016. In July 2016, it won the bid for the procurement of traditional Chinese medicine formula granules from Zhejiang Traditional Chinese Medicine Hospital. These all prove the company's strong competitiveness within the province. Third, the company already has production capacity for traditional Chinese medicine tablets and Chinese formula granules that can satisfy existing customers, and as a listed company, it can quickly finance to seize the market. The company's original pharmaceutical commercial business maintained relatively steady growth. Currently, the company's main business is pharmaceutical wholesale and chain retail. In 2015, the revenue and gross profit of the wholesale business were 1 billion and 68.92 million, respectively, accounting for 82% and 51%, respectively. The company's distribution areas are mainly in Shaoxing and Hangzhou, Xiaoshan, Yuhang and other regions. The company's wholesale business targets mainly end customers such as medical institutions and retail pharmacies at all levels in cities and rural townships. The company's pharmacy chain mainly faces Shaoxing and surrounding markets, and overseas expansion is not rapid, so we expect the company's pharmaceutical business to maintain relatively steady growth in the future. Investment advice: We believe that with favorable policy incentives such as the liberalization of health insurance, the formula granule market in Zhejiang Province will further usher in a period of rapid growth. As a listed company in Zhejiang Province, Jingyuetang Pharmaceutical, a subsidiary of Huatong Pharmaceutical, has an early layout and excellent quality, and is expected to become a leading local formulation granule company. In the long run, with excellent product quality and terminal service capabilities, the company is expected to enter other domestic markets. We have determined that the company's new formula granule production capacity can increase the company's revenue by more than 500 million yuan and net profit by more than 60 million yuan. Due to industry liberalization and policy uncertainty, we only consider the company's original business. The estimated net profit for 2016-2018 is 50.7 million, 55.53 million, and 62.74 million, respectively, with corresponding valuations of 88X, 80X, and 71X. The current market value of the company is about 4.5 billion yuan, not counting the additional distribution, it is 5.3 billion. Although the current business valuation is high, considering that the company's current small market value characteristics and the Chinese medicine formula granules provide the company with great flexibility, it is given a “highly recommended” rating. Risk Warning: 1. Policy progress falls short of expectations. 2. Accelerated competition has led to a decline in product profitability.