Key investment events: The company's 2016 revenue and net profit after deducting non-net profit were about 3.69 billion yuan and 370 million yuan respectively, with year-on-year increases of about 11.6% and 114.7% respectively; 2017Q1 operating income and net profit after deducting non-net profit were about 930 million yuan and 90 million yuan respectively, with year-on-year increases of about 26.4% and 17.9%, respectively. The share of medical services has increased, and the revenue structure continues to be optimized. Revenue in 2016 was approximately $3.69 billion, up 11.6% year over year. Among them, the pharmaceutical industry and medical services were about 3.19 billion yuan and 500 million yuan respectively, with year-on-year increases of about 4.5% and 98%. The revenue of the anti-tumor sector is about 1.9 billion yuan (accounting for about 59% of industrial revenue), and its overall growth rate is about 10%; sales of the main products Eddy and Lopatin increased by about 13% and 53% respectively. We expect that the main reason why revenue growth is lower than the sales growth rate is that the impact of falling terminal prices of products such as Eddy will continue to exist. However, judging from the latest Eddy tender price, it can stabilize around 26-27 yuan/branch. Therefore, we believe that Eddy has basically completed this round of price adjustments. It is expected that in the context of continuing to strengthen terminal promotion, revenue from the oncology sector will continue to grow steadily. The company's medical service revenue was about 500 million yuan, an increase of about 98% over the previous year. The main reason was the addition of Huainan Chaoyang Hospital and the impact of adding Shanghai Huayi, Nanjing Ruike, and Mianyang Fulin Hospital in 2017. It is expected that medical service revenue will continue to grow rapidly. The company's non-net profit deducted in 2016 was about 370 million yuan, a year-on-year increase of about 114.7%. The detailed analysis is as follows: 1) The share of medical service revenue increased from 7.6% to 13.5%, but due to its gross margin of 28% was far lower than the gross profit margin of pharmaceuticals; changes in the revenue structure led to the company's gross margin of about 76.5%, a year-on-year decrease of about 4 percentage points; 2) The cost ratio for the period was about 62%, down about 11 percentage points year on year. Among them, sales cost controls were strengthened to about 1.8 billion yuan, a year-on-year decrease of about 10%. 2017Q1 revenue and net profit after deducting non-net profit were approximately RMB 930 million and RMB 90 million respectively, with year-on-year increases of about 26.4% and 17.9%, respectively. We believe that the core products of the 2017 Q1 company, such as Eddy and Lobo, will continue to grow rapidly. The pharmaceutical industry is expected to grow at a rate of more than 10%, and due to the addition of Chaoyang Hospital, the overall Q1 revenue growth rate will be faster than the net profit growth rate. The health insurance catalogue has clearly benefited, and we are optimistic about the company's prospects in the long term. 1) This round of medical insurance catalogue adjustments has been released, and the company's products have benefited more than market expectations. a. The curative effects of Liqi Revitalizing Blood Drop Pills are comparable to those of Dan Di. The peak sales value is expected to exceed 1 billion yuan in this round of medical insurance catalogue adjustments; b. Aiyu capsules are also newly added to the medical insurance catalogue this time, which complements well with compound banqin capsules in the cancer sector, and is expected to have a market space of more than 500 million yuan; c. There are also new breakthroughs in the original medical insurance catalogue products. For example, the medical insurance classification of Baogong hemostatic granules and gynaide capsules was adjusted from Class B to Class A. Furthermore, competitors' medical insurance restrictions have increased, and the core product Eddy Injection has benefited relatively. We believe that with the optimization of the company's product revenue structure, it will usher in more qualitative growth after the growth rate bottoms out. The net profit of drugs is expected to exceed 400 million yuan in 2017; 2) Leaders in hierarchical cancer treatment will accelerate the construction of medical service platforms. a. The industry-leading medical doctor group plans to establish 30 oncologist groups across the country (covering the whole country) over a period of 3-5 years and achieve talent reserves and patient transfer for oncology medical service institutions through the “Oncologist Group” platform; b. As a leader in hierarchical cancer treatment, the company gradually establishes a “specialist hospital+treatment center+mobile medical treatment” model, and plans to establish 300 cancer hospitals or cancer treatment centers, reaching a medical service scale of 50,000 beds. At present, projects such as Huainan Chaoyang Hospital (comprehensive), Bijie Cancer Hospital (specialist), and Shanghai Huayi (diagnosis and treatment center) have been implemented one after another. Continued extension expectations are strong. The net profit of medical services is expected to exceed 100 million yuan in 2017. Profit forecasting and investment advice. We forecast that the company's EPS in 2017-2019 will be 0.67 yuan, 0.83 yuan, and 0.96 yuan respectively, with corresponding price-earnings ratios of 24 times, 20 times, and 17 times, respectively. We continue to be optimistic about the optimization and growth of its revenue structure and the implementation of extension. Maintain a “buy” rating. Risk warning: Drug price reduction risk, drug sales or low expectations, strategic transformation progress or low expectations.