Event: the company's operating income and deducted non-net profit in 2016 were about 1.3 billion yuan and 220 million yuan respectively, an increase of about 83% and 275% respectively over the same period last year. The operating income and non-net profit deducted from 2016Q4 were about 420 million yuan and 65 million yuan respectively, up about 117% and 515% respectively. At the same time, it is predicted that the net profit of 2017Q1 is about 84 million-92 million yuan, an increase of about 175-201% over the same period last year.

The traditional business boom has increased, and factors have led to high performance growth. The operating revenue in 2016 was about 1.3 billion yuan, an increase of about 83% over the same period last year. The reasons for the substantial increase in revenue during the period are as follows: 1) among them, the subsidiary Ningbo Tianheng merged in May 2015, and the subsidiary only Chu Pharmaceutical began to consolidate in June 2016. we estimate that the combined factors lead to an annual increase of about 450 million yuan. 2) if you exclude the impact of Tianheng and only Chu on the company's revenue in 2015-2016, it is estimated that the traditional main business income growth rate of more than 40%, in addition to the recovery of API business, oxiracetam API due to changes in the competitive pattern also led to a substantial increase in its income. The deducted non-net profit in 2016 was about 220 million yuan, an increase of about 275% over the same period last year. During the period, the sub-companies Ningbo Tianheng and only Chu Pharmaceutical contributed about 60 million yuan and 50 million yuan respectively, estimated that the net profit growth rate of the traditional main business may exceed 300%, mainly due to the impact of changes in the competition pattern of oxiracetam raw materials. For example, from the point of view of gross profit margin and expenses, the company's gross profit margin is about 47%, which is increased by about 3 percentage points due to changes in the product structure; the expense rate during the period is about 26.2%, and the overall control is better reduced by about 6 percentage points. The company forecasts that the net profit of 2017Q1 is about 84 million-92 million yuan, an increase of about 175-201% over the same period last year, mainly due to the increase in the scope of merger during the period compared with the same period. We judge that the competition pattern of oxiracetam APIs will remain in 2017, and the good operating conditions of Tianheng and Jichu will maintain rapid growth, and the net profit growth rate in 2017 is expected to exceed 50%.

The business of raw materials has developed steadily and the layout of specialist drugs has been actively promoted. 1) Anti-infective drug hospital terminal accounts for more than 20% is still the largest area of drug use, the company's main products such as cephalosporins, gentamicin and other areas have quality and cost advantages, and industry production process verification will also be good for the company's API business development, such as oxiracetam production process verification and withdrawal of competitors' GMP certificate has a significant impact on the company's performance, it is expected that this field will still have sustainable growth potential in the future. 2) vigorously develop the preparation business and actively promote the distribution of specialized drugs. The company currently has Toremifen, Ondansetron and other preparation products, of which Toremifen is the exclusive variety, mainly used in the treatment of breast cancer, such as successfully passing the consistency evaluation is expected to enjoy the "volume and price rise" market dividend. Nabiprolol Hydrochloride, Tovaptan tablets, Laconamide tablets and other heavyweight varieties are stored in the R & D line, and the company's product line will be greatly improved if it can be successfully listed.

Profit forecast and investment advice. We estimate that the EPS in 2017-2019 is 0.83,0.96,1.10 yuan respectively (the original EPS in 2017-2018 is 0.80,1.07 yuan respectively, the adjustment is mainly due to the reference to the income growth changes of subsidiary Tianheng and Jichu), the corresponding PE is 32 times, 28 times and 24 times. We are still optimistic that the prosperity of the company's traditional main business will pick up, and a number of API and preparation products are expected to double; Tianheng and only Chu also make the company's performance grow rapidly, and it is expected that it will enter the track of rapid development in the future and maintain its "buy" rating.

Risk hints: risks such as limited resistance policy, drug bidding and price reduction, achievement or undercommitment of M & An enterprises, etc.