The incident company announced its 2016 annual report, achieving total operating income of 312.8826 million yuan, an increase of 1.28% over the same period last year; net profit attributable to shareholders of listed companies of 66.413 million yuan, a decrease of 35.83% over the same period last year; and net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss of 62.465 million yuan, down 35.83% from the same period last year. The company released a performance forecast for the first quarter of 2017, which is a decrease of 0-30% compared to the same period last year. The main reason is that the cost of R&D expenses during the reporting period increased by 6 million compared to the same period last year. Reviewing that entecavir has become the mainstream drug for chronic hepatitis B, driving significant adjustments in the company's revenue structure: entecavir's revenue share increased from 47.3% in '14 to 71.2% in '16. The amount of the main variety argandine (adefovir ester) fell 15.7%, and the average ex-factory price fell 10.0%; the amount of hagandine (lamivudine) fell 25.9%, and the average ex-factory price fell 9.5%; the volume of engandine (entecavir) increased by 41.6%, and the average ex-factory price fell 15.1%. The company's sales capacity continues to improve, and the share of direct sales has further increased to 46.85%: we estimate that direct sales revenue mainly comes from entecavir. Direct sales sales have grown by more than 60%, exceeding 15 million tablets (corresponding to more than 40,000 patients with chronic hepatitis B), providing a guarantee for the future release of tenofovir. New drug development expenses have increased dramatically, dragging down performance in the short term, but helping maintain the company's leading position in the field of liver disease in the long term: GST-HG131 (hepatitis B) current expenditure of 6 million (total investment of 24 million); GST-HG141 (hepatitis B) and GST-HG151 (non-alcoholic steatohepatitis) current expenditure of 6 million (total investment of 24 million); GST-HG131 (hepatitis B) and G current expenditure of 18 million (total investment of 24 million); GST-HG161 (liver cancer) current expenditure 10 million (total investment of 25.5 million). We expect that the company's R&D expenditure will remain above 15% of revenue in the next few years, which will have a significant impact on performance. The company's production staff has increased by nearly 60% in 2016, making every effort to prepare for nofovir production: the company's first trial of denofovir has entered the on-site inspection stage at the verification center. Currently, the company's production is ready, awaiting on-site inspection by CDE technicians. The company is looking for extension opportunities: we are concerned that “due diligence has been carried out on a number of proposed mergers and acquisitions projects, and intermediary consulting fees have increased by 3.5 million yuan” in the annual report. At the same time, the company plans to jointly establish the “Fujian ****fang Pharmaceutical Innovation Research and Development Center (Limited Partnership)” with a total commitment amount of RMB 200 million, which will mainly focus on pharmaceutical and medical device projects. The profit adjustment is based on continued excess investment in R&D over the next few years and the approval of tenofovir, which is expected to gradually increase the endogenous growth rate. We expect the net profit for 2017/2018/2019 to be 0.90/134/192 million, corresponding to a corresponding growth rate of 36.1%/47.9%/43.9%. The current stock price corresponds to 81.3 times P/E in '17. Investment recommendations: 1) The market for chronic hepatitis B is huge, and tenofovir will be the mainstream drug in China for the next 5 years; 2) Guangshengtang is expected to be the first HBV indication; 3) the company's direct sales team continues to expand, which can support the release of entecavir and tenofovir. The company actively cooperates with the state control to ensure stable supply, and on the other hand, expand the OTC market and long-tail medical terminals; 4) The company's active deployment of innovative drugs in the field of liver disease is expected to become an evergreen enterprise in the field of liver disease, with long-term investment value. Based on tenofovir HBV indications, the first model is highly flexible about future performance and maintains an increase in ownership rating. Risks indicate product price pressure, uncertain launch time of new products, low expectations of new product sales growth, etc.