Main views 1. Antineoplastic drug use has achieved rapid growth, and medical services are growing rapidly. As the main product line that dominates half of the company, anti-tumor drugs have maintained rapid growth in sales revenue by relying on the outstanding performance of the core varieties Eddy and Lobo. During the annual reporting period, this section achieved revenue of 1,880 billion yuan, an increase of 10.68% over the previous year. Among them, in terms of sales volume alone, the established variety Eddy sold 61.65 million units, an increase of 13.05% over the previous year, while Lobo developed rapidly, achieving sales volume of 717,700 units, an increase of 52.90% over the previous year. Even considering the impact of price cuts in tenders after the introduction of the new medical insurance catalogue, with further integration of the industry and the company's active response to the decline in hierarchical diagnosis and treatment channels, it is expected that ADD's growth will still outperform the industry's growth rate in the future. At the same time, Robo is also expected to continue to maintain a high level of growth of more than 50%, and anti-tumor drugs are expected to continue to provide a stable output for the company's future development. On the other hand, benefiting from the combined influence of Chaoyang Hospital in Huainan, the company achieved medical service revenue of 495 million yuan during the annual reporting period, an increase of 98.03% over the previous year, accounting for 13.45% of operating income, a sharp increase of 5.87 percentage points. The ecological chain of cancer diagnosis and treatment services is another business pillar that the company has worked hard to build in the past two years. It has now formed a clear strategic layout of “one platform, two major supports, three models”; as the speed of mergers and acquisitions in the field of medical services continues to accelerate, the company has now laid out 4 hospitals, 28 cancer treatment centers, and close to 10 oncologist groups. It is expected that various acquisitions and cooperation will be implemented one after another during the year. In addition to the performance of existing hospitals and oncology centers, medical services will continue to grow rapidly in the next few years, becoming the main contributor to the company's performance elasticity. 2. There is still room for further improvement in profitability. The growth in sales expenses has been curtailed by the sharp increase in the share of medical service revenue. The company's gross margin during the annual reporting period was 76.46%, a decrease of 4.39 percentage points, while the gross margin for the first quarter was 73.07%, a further decrease of 3.39 percentage points from 2016. It is expected that with the continuous increase in revenue in the medical services sector, the company's gross margin level will continue to decline to find a balance point. Meanwhile, the company's sales expense ratio improved significantly in 2016 and fell below the average of comparable companies in the same industry of 50% for the first time. In 2016, the company's sales expense ratio was 49.82%, down 12.09 percentage points from 2015, and a significant improvement from the average of 55% before 2014. In the first quarter of 2017, the company's sales expense ratio improved further, falling to 46.53%. We expect that with the company's focus on variety and medical service business, there will be room for further improvement in the sales expense ratio. Furthermore, the company's management expense ratio and financial expense ratio have increased slightly compared to before 2015. Overall, the company's rapid increase in sales expenses in 2015 was strongly controlled, and there is still room for further improvement in profitability. 3. The company's long-term positive trend has not changed. You might as well wait patiently. Judging from the company's main business, whether in the pharmaceutical industry or medical services, the factors favorable to the company's long-term development are quite obvious. On the one hand, the company is the biggest beneficiary of the introduction of the new medical insurance catalogue, exceeding market expectations both in terms of the number of new catalogue entries and the lifting of usage restrictions. Among them, Lobo's upgrade from second-line drug use for cancer treatment to first-line drug use is expected to provide support for the steady growth of the pharmaceutical industry's revenue; on the other hand, the cancer diagnosis and treatment service industry chain that the company focuses on has the characteristics of “large space and high threshold”, and is in line with the country's strategic development direction of promoting hierarchical diagnosis and treatment. The company's strategic layout and business model are gradually becoming clear, and it is expected to become another important contributor to the company's performance after the pharmaceutical industry. At the same time, the company's senior management continued to increase their holdings in the company's stock in the first quarter, which not only provided strong support for the company's stock price, but also demonstrated the firm confidence of senior management in the future development of the company. 4. Investment advice: We expect the company to achieve operating income of 43.79 yuan, 5.04 billion yuan and 5.854 billion yuan in 2017-2019, net profit of 538 million yuan, 621 million yuan and 774 million yuan, corresponding net profit per share of 0.68 yuan, 0.78 yuan and 0.98 yuan respectively, and corresponding price-earnings ratios of 24 times, 21 times and 17 times respectively. We maintain the “recommended” rating. 5. Risk warning: There is a risk that the pharmaceutical business growth rate will fall short of expectations due to loplatin sales falling short of expectations and medical insurance fees; the risk that the expansion of the comprehensive oncology medical service platform will not meet expectations.