The core view is that the increase in R&D expenses has led to a decline in profits. The company announced its quarterly report. In the first quarter of 2017, it achieved operating income of 83 million yuan, an increase of 1.37% over the previous year, and net profit attributable to shareholders of listed companies was 220 million yuan, a decrease of 27.66% over the previous year. The main reason for the decline in the company's net profit is the sharp increase in the company's R&D expenses. Compared with the same period last year, R&D expenses increased by about 7.62 million yuan, which in turn led to a sharp increase in the company's management expenses ratio from 16.63% in 16Q1 to 26.13%. The company's sales expense ratio was 26.13%, up 1.38pp from the same period last year. The company's gross margin increased in the Q1 quarter to 88.94%, up 1.99pp from last year. The share of direct sales has further increased, paving the way for the marketing of tenofovir ester. During the reporting period, the company continued to step up the development of direct sales terminals, and further increased the sales volume of existing direct sales terminals through academic promotion activities. At the same time, in response to policies such as the two-vote system, the company carried out direct marketing reforms to the original investment model, increasing the company's share of direct sales from 43.96% in the same period last year to 58.43%. We believe that the company has stepped up its direct sales efforts to lay the foundation for rapid release of tenofovir ester after marketing. Currently, the company's tenofovir ester has entered the three-in-one on-site inspection stage, and is expected to be approved in early May. Considering that Guangshengtang is likely to be the first approved pilot company for tenofovir for hepatitis B, we estimate that this variety may quickly enter the markets of various provinces through supplementary bidding and other means, forming an important support for the company's performance in the second half of the year. It closely lays out other fields of liver disease, and is optimistic about the company's future development over the long term. In recent years, the company has continuously increased investment in research and development, and cooperated with Shanghai Pharmaceutical Kangde New Drug Development Company to develop 2 new drugs for hepatitis B, 1 new drug for fatty liver disease, and 1 new drug against liver cancer. We believe that with the successive introduction of policies such as national consistency evaluation and priority evaluation, high-quality and innovative varieties will continue to benefit, while the company's emphasis on research and development and its close layout in other fields of liver disease is in line with the trend of stricter pharmaceutical administration standards in China. We are optimistic about the company's future development for a long time. Financial forecasts and investment recommendations Since the company continues to increase investment in R&D and has a great impact on performance, we have adjusted the company's profit forecast for the year 17-19. The company's earnings per share for 2017-2019 are expected to be 0.68, 1.08, and 1.60 yuan (the original forecast was 0.77, 1.32, and 1.94 yuan). According to comparable companies, the company was valued 51 times in 2018, and the corresponding target price was 55.08 yuan, giving it a buying rating. Risk warning If the company's tenofovir ester is not approved in a timely manner, it may affect the company's performance in 2017 and 2018.