Main views 1. The results for the third quarter improved month-on-month. Short-term expenses dragged down profits. Looking at a single quarter, in 2016, Q3 achieved operating income of 72.96 million yuan, an increase of 34.94% over the previous year, and net profit of 15.31 million yuan, an increase of 9.30% over the previous year; the revenue and profit growth rate improved significantly compared to 23% and -9% in the first half of this year. The reasons why the profit growth rate is lower than the revenue growth rate include: 1) the company's major asset restructuring of Zhuhai's major asset restructuring was 5.368 million yuan (including interest expenses for M&A capital loans of 2.55 million yuan); some of the company's shareholding and holding subsidiary products are still in the R&D or new product launch promotion stage and have failed to generate profit. Among them, long-term equity investment losses of 4,5798 million yuan, and mergers and acquisitions holding subsidiaries (excluding Zhuhai Xile) have accumulated losses of 5.2712 million yuan; the company's short-term loan interest expenses of 5.7043 million yuan, and financial expenses increased by 72.31 million yuan over the same period last year; Short-term costs are dragging down performance. 2. The company to acquire leading varieties of high clinical value cephalosporin antibiotics plans to raise no more than 1.85 billion yuan in capital to no more than 5 specific investors. After deducting issuance fees (1.8 billion yuan), it will be used to acquire 100% of Whitdison's shares. Whitdison's performance promises that net profit for 2016 and 2017 will not be less than 120 million yuan and 160 million yuan respectively. Otherwise, the company will be compensated in cash, and the compensation amount will be 3-5 times the difference in profit. The main product of Huiddison is sodium laoxycephalosporin for injection (semelin), which is a type of cephene. It is suitable for various infections caused by sensitive bacteria. It is 4-16 times stronger against gram-negative bacteria than ordinary cephalosporins. At the same time, it has high drug safety, no liver and nephrotoxicity, and few adverse effects. It is a high-quality and efficient antibiotic. Currently, only two companies in China have production batches, Hainan Lingkang and Huiddison. Since the implementation of the “Antibiotic Restriction Order” in 2012, there have been structural adjustments in antibiotic products, and products with high clinical value have shown a relatively rapid growth trend. According to IMS Health data, 2016H1 sales of sodium laoxiferin preparations nationwide reached 1,154 billion yuan, an increase of 40.90% over the previous year. 3. The strong profitability of the acquisition target, added impetus to the company's sustainable development. In 2014, 2015, and 2016, H1 Whitdison's operating income was 86.28 million yuan, 253 million yuan, and 242 million yuan respectively, and net profit was 6.8 million yuan, 80.89 million yuan, and 73.91 million yuan respectively. The market share of Hudison laoxycephalosporin also increased rapidly from 15.87% in 2014 to 41.85% in 2016 H1, and its market share is expected to surpass Hainan Lingkang in the future. In 2016, for the first time, H1 Whitdison entered IMSHealth's top 200 sales volume for a single manufacturer in mainland China, ranking 120, ranking first in growth rate. Since last year, the company has launched a “3+1" strategic plan, namely the three business segments of regenerative medicine materials+cell therapy+pharmaceuticals and an incubation platform. Whether it's biomedical materials, cell therapy, or new drug research and development, the company needs to invest continuously over a long period of time. The company's original profit volume was limited, and the acquisition of Whitdison, which had good performance growth, raised the company's profit level and added impetus to sustainable development. In addition, Whitdison has now set up a 100-person academic promotion and marketing team, covering 30 provinces and cities across the country, with more than 100 agents, and strong marketing capabilities. This can be seen from the growth rate of performance over the past two years. The company is optimistic about Whitdison's excellent marketing platform and will help the company launch and promote other new drugs in the future. 4. Firmly optimistic about the market prospects of Youdeqing Cornea We discussed in detail the huge market demand of Youdeqing Cornea and the company's technological leadership in our previous report. At present, the company has completed the merger and acquisition of Zhuhai Xiangle, greatly enhancing the company's capabilities in ophthalmology channels and brand operations. Since the official sale in June, Youdeqing corneal transplantation has been carried out in Yunnan, Sichuan, Fujian, Guangdong, Shandong, Anhui, Shanxi, Hunan, Jiangsu, Zhejiang and other provinces. Nearly 100 doctors have been trained, and 22 hospitals have been developed. It is expected that 60-80 hospitals will be completed this year. According to enterprise-side estimates, China's stock market is about 20 billion yuan, and the annual incremental market is about 1-2 billion yuan. In view of the huge clinical demand, our analysis determined that the product is likely to achieve a revenue scale of over 100 million yuan in a relatively short period of time. 5. Profit forecast and investment suggestions: The company's fixed growth plan mentions that the number of shares to be issued does not exceed 70 million shares. We believe this is only the upper limit of the issuance plan designed by the intermediary, and does not guide the actual situation of issuance. The company's fixed increase this time still needs permission from the shareholders' meeting and the Securities Regulatory Commission. Judging from the time point of view, it may be completed in the second quarter of next year. In the last round of the company's acquisition of Zhuhai Xiangle, the company issued shares to purchase assets and supporting financing. The share capital dilution ratio was about 8%; the asset scale of the company's current acquisition was larger than that of Zhuhai Xiangle, and the issuance volume was also large, but we do not expect to greatly dilute the shareholding ratio of existing shareholders. We raised the company's target price for the next six months to 70 yuan to 75 yuan/share. Based on this estimation, raising 1.85 billion yuan would require an additional 24.67 million shares to 26.43 million shares. Compared with the total share capital of 266 million shares before the increase, the dilution ratio of this fixed increase to the share capital is less than 10%. Based on the company's net profit of 168 million yuan in 2017 and Whitdison's performance commitment of 160 million yuan (half-year consolidated table), the post-issuance EPS was 0.84 yuan/share (1.10 yuan/share for EPS preparation), a 35% increase from 0.62 yuan/share before issuance. We expect artificial corneal products to contribute a significant increase in performance starting in 2017, but the current performance forecast does not include expectations for Youdeqing artificial corneal products. Currently, the stock price corresponds to PE 54 times in 2017 (41 times PE for exam preparation). We are firmly optimistic about the future development of Guanhao Biotech and continue to give the company a “highly recommended” rating, with a target price of 70-75 yuan for half a year. 6. Risk warning: Asset acquisition performance falls short of expectations; corneal volume falls short of expectations.