The company released its 2016 annual report. Revenue, net profit and net profit after deducting net income were 363 million yuan, 60.93 million yuan and 55.91 million yuan respectively, +10.89%, +41.86%, and +53.24% over the same period last year. At the same time, a profit distribution plan was announced, and it is proposed to distribute a cash dividend of 0.12 yuan (tax included) for every 10 shares. Thanks to the firm implementation of the inventory removal policy, the company's product sales structure has been effectively adjusted, and gross margin has continued to increase dramatically. We are optimistic about Davis's double impact brought about by the continuous improvement of the company's product sales structure and restorative growth. We look forward to the increase in performance brought about by the combination of improved marketing capabilities and future production capacity, and maintain our recommendation. The restructuring of product sales has paid off, and gross margin continues to rise. The company's gross profit margin of pharmaceutical sales in '16 was 29.84%, up 4.49 percentage points from '15. The increase in overall gross margin has benefited from the firm implementation of the company's active absorption channel inventory policy and significant improvements in the product sales structure in recent years. The core product, Liuwei Dihuang Pills, resumed rapid growth after channel sorting was completed, achieving Davis's double hit: sales in 2016 were 87.3 million yuan, +146.77% year-on-year; gross margin increased sharply from 45.58% in '15 to 55.41% in '16. The growth momentum is gradually showing. After removing inventory, Gansu has begun to restorative growth: the company's sales revenue in Gansu in 2016 was 136 million yuan, about 29% of the same period. The company's sales revenue in Shaanxi Province is basically the same as last year, and channels are still being sorted out. It is expected that sales revenue will recover soon. At the same time, the company's marketing upgrade activities in key cities in Shaanxi and Gan provinces continue to be implemented, which is expected to boost sales growth in the two provinces in the future. It has traditional Chinese medicine formula granules and a catalyst for state-owned enterprise reform. The 300 kinds of traditional Chinese medicine formula granules purchased by the company from Lanzhou Chemical have completed the technology transfer, which can guarantee mass production in the shortest time after the policy is introduced, and share the large market for traditional Chinese medicine formula granules. At the same time, as a listed company under the Lanzhou State-owned Assets Administration Commission, the state-owned enterprise reform will release the company's management and operation vitality to a large extent. Profit forecast: The company's net profit growth rate for 2017-2019 is expected to be 30%, 19%, and 38%, respectively, and the corresponding EPS is 0.16, 0.19, and 0.26 yuan, respectively. We are optimistic about the company's excellent product strength and deep brand accumulation, and expect short-term restorative growth to rapidly increase profit margins and long-term changes in revenue quality brought about by the company's production capacity upgrades, and maintain recommendations. Risk warning: The progress of marketing activities falls short of expectations; construction of new plants falls short of expectations; and progress in policy introduction falls short of expectations.