Incident: On the evening of April 19, the company released its 2016 annual report. During the reporting period, it achieved operating income of 2,641 million yuan, up 7.38% year on year; realized net profit of 340 million yuan, up 4.91% year on year; basic earnings per share were 0.39 yuan, up 5.41% from the same period last year, which is basically in line with expectations. Key investment points: Q4 revenue increased by more than 20%, a significant improvement over the previous month. Facing many difficulties in 2016, the company's revenue and profit achieved steady growth. Among them, Q4 revenue increased by 20.44% and net profit to mother increased by 13.88%, a significant improvement over the previous three quarters. In terms of main products, Baisaitong and Baibei fell 10% and 17%, respectively, due to tender price cuts and bid abandonment. Products such as olivexanene (PDB data showed sales of key hospitals reached 190 million, up about 70% year on year) and Xinnao Ning achieved relatively rapid growth under the influence of medical insurance supplements and sales expansion, and the share of injectable revenue fell by about 8 percentage points. Sales expenses have been better controlled, and R&D investment has increased dramatically. The company's expenses were well controlled in '16. Among them, the sales expense ratio fell 1.79 percentage points, the management expense ratio remained flat, and the financial expense ratio rose slightly (mainly due to the impact of issuing bonds in '16). In addition, the company's investment in drug research and development increased by 71% to 150 million, and the company's layout in the field of high-end generic drugs and biopharmaceuticals is worth paying attention to. Equity acquisitions boosted performance. During the reporting period, the company used 10.89 million US dollars to acquire 36% of Huiju Pharmaceutical and Haihui Pharmaceutical's shares, increasing the shareholding ratio to more than 60% and guaranteeing the supply of APIs. The two companies contributed 1937.85 and -2.7856 million yuan in net profit to listed companies, respectively, which increased the company's performance. In addition, the company recently purchased 30% of Jingcheng Pharmaceutical's minority shareholders' interests for 180 million yuan, which is expected to increase its 17-year performance by about 15 million yuan. Profit forecasting and ratings. In the current development situation of the pharmaceutical industry, although the price reduction pressure for some of the main products is still high, varieties such as olivodene have great potential for growth and are expected to benefit from the adjustment of the medical insurance catalogue and the expansion of new health insurance provinces. In the long run, the company is expected to benefit from the layout of high-end formulations and medical services. We believe that the company's performance is expected to maintain steady growth in the future. EPS is expected to be 0.43, 0.49, and 0.55 yuan respectively in 17-19, corresponding to the closing price of 9.34 yuan on April 19, with price-earnings ratios of 21, 19, and 17 times, maintaining the “recommended” rating. Risk warning: tender price reduction, policy risk