Key points 1. The core focus went hand in hand, and the performance growth was in line with expectations. The company's core variety, Yindan Xinnaotong, continued to maintain a steady growth of more than 10%. The focused granule product line, such as children's chai gui antipyretic granules, double sheep throat paralysis particles, cough relief granules, etc. achieved rapid growth in collaboration with the company's leading OTC marketing network. As a result, the company achieved revenue of 2,214 billion yuan in 2016, an increase of 16.59% over the previous year. At the same time, net profit after deduction of 474 million yuan, a year-on-year increase of 21.52%, revenue and net profit both achieved rapid growth, basic Meets our expectations. The company has been deeply involved in the pharmaceutical field for many years and has been very effective in building marketing teams, and its terminal coverage is among the highest in the country; among them, in terms of hospitals, the company has developed more than 3,570 hospitals above level 2, including more than 1,200 tertiary hospitals, with a coverage rate of 56%; while in terms of pharmacy terminals, the number of stores covered by the company has reached more than 300,000, with a coverage rate close to 80%; at the same time, the company cooperated with the implementation of hierarchical diagnosis and treatment, and spared no effort in developing grass-roots channels, with about 30,000 new primary clinics. Backed by the company's strong marketing platform, we expect the company's future performance to maintain steady and rapid growth. 2. Research and development of new drugs is progressing steadily, and hospitals are expanding to the next city. While maintaining the steady and rapid growth of existing varieties, the company is also making active efforts in R&D innovation and the extension of the industrial chain, which is beginning to see results. On the one hand, the company makes full use of academic resources such as scientific research institutes and institutions of higher learning to explore an independent innovation model integrating “industry, education and research”. Currently, the new drugs being developed involve varieties of traditional Chinese medicine, chemicals, and biopharmaceuticals, as well as major diseases such as circulatory systems and anti-tumors. Once captured, it is expected to become a new growth point for the company's performance in the future. On the other hand, the company entered the field of diabetes prevention and treatment services with the exclusive in-hospital formulation, Tangning Tongluo capsules, as a breakthrough. Guiyang and Changsha TCM diabetes hospitals have all opened as scheduled. Among them, Guiyang Hospital received more than 25,000 patients in 2016 and achieved revenue of 52.24 million yuan. Furthermore, the company's new shareholding is Chengdu Yinhai Qiming Hospital Management Co., Ltd., with the team of Professor Duan Junguo, an academic leader in traditional Chinese medicine in key disciplines in Chengdu University of Traditional Chinese Medicine, as the core of the company's diabetes prevention and treatment model Export abroad has also found a new resource platform. 3. In addition to building physical traditional Chinese medicine diabetes hospitals, the anticipated diabetes industry chain is actively promoting Dengning Tongliao capsules within and outside the province through in-hospital formulation cooperation models. Currently, it has signed contracts with 26 medical institutions of various types in Guizhou Province and has entered local health insurance at all levels. In addition to the company's two self-built hospitals, the total number has now reached 28. At the same time, the company is also actively communicating and cooperating with major medical institutions to further expand product coverage. Furthermore, the company signed the “Guizhou Internet+Chronic Disease Medical Service” strategic cooperation agreement with the Guizhou Provincial Health Planning Commission and Tencent Computer, using the company's diabetes specialist hospitals as carriers to create an “online+offline” comprehensive diabetes management and treatment industry chain. Currently, the number of active users has reached more than 40,000, and has received unanimous praise from experts inside and outside the province. 4. Investment recommendations: We expect the company to achieve operating income of 2,577 billion yuan, 2,982 billion yuan and 3.390 billion yuan in 2017-2019. At the same time, it will achieve net profit of 557 million yuan, 614 million yuan and 670 million yuan, corresponding to earnings per share of 0.39 yuan, 0.44 yuan and 0.47 yuan, corresponding to 46 times, 42 times and 38 times PE, and maintain the “recommended” rating. 5. Risk warning: the risk of price reduction in tenders for core varieties; the risk that the promotion of Tongluo Tongluo capsules is not as good as expected.