Key investment points: The traditional Chinese medicine formula granule business is progressing step by step. The company was approved by the Zhejiang Administration of Traditional Chinese Medicine in December 2015. The traditional Chinese medicine formula granule project of the subsidiary Jingyuetang was included in the 2015 Chinese medicine formula granule research project, and in January 2016, Jingyuetang obtained the GMP certificate. Currently, the company has more than 600 registered varieties of traditional Chinese medicine formula granules, which can basically meet the clinical formulation needs of medical institutions. Currently, it has won bids for medical institutions in the province such as Zhejiang Traditional Chinese Medicine Hospital. It is expected that in the future, the company will focus on the market within Zhejiang Province, gradually develop the relatively mature level-III traditional Chinese medicine hospital market and the level-II hospital market with a low penetration rate of formula granules, and gradually promote the development of the formula granule business. Traditional Chinese medicine tablets have continued to grow, and the National Medical Center is gradually cultivating them. The company's Chinese medicine tablet business currently has a production capacity of about 2,000 tons and produces more than 1,000 kinds of products. The company has set up counters for Chinese medicine tablets in some direct-run pharmacies and provides broiler services. It is expected that as the company gradually invests in additional production capacity and gradually expands the sales side, the tablet business will continue to grow. The company currently has two Jingyuetang Chinese Pharmacies in Keqiao District and Yuecheng District of Shaoxing City. The Keqiao National Pharmacy has been cultivated quite mature; the Yuecheng Chinese Pharmacy has not yet been included in the scope of medical insurance coordination due to its short operating time, so the scale of business is small. The commercial sector is firmly rooted in the region and has control over sales terminals. The company is deeply involved in the Shaoxing market. The sales ratio of the wholesale and retail business directly to end customers has always been above 90%. Currently, there are nearly 100 pharmacies under the retail business, and the wholesale business covers major hospitals in Shaoxing. The subsidiary Huayao Pharmaceutical Logistics is the second company in Zhejiang Province to be approved for third-party drug logistics. The company's commercial sector has a solid foundation in the region and will help sell tablets and formula granules; in the future, it is expected that it will gradually enter markets outside the region through epitaxial expansion or the establishment of new pharmacies. Zengfa has passed the shareholders' meeting, and employee participation in shareholding plans has been increased. The company plans to raise an additional capital of about 600 million yuan from the four natural persons and employee stock ownership plans at a price of 24.95 yuan per share, of which 180 million yuan was subscribed for the employee stock ownership plan, which has now been reviewed by the shareholders' meeting. The capital raised is mainly used to build production capacity for 10,000 tons of Chinese medicine tablets and 1000 tons of formula granules. We expect that after the additional development project is completed and put into production, the production capacity of traditional Chinese medicine products will be greatly increased, and employee incentives will be generated through the shareholding plan, bringing new growth impetus to the company's long-term development. risk factors. Sales of Chinese medicine tablets have fallen short of expectations, the formula granule business has not progressed as expected, and additional distribution and employee stock ownership plans have not yet been approved by the Securities Regulatory Commission and other relevant departments. Earnings forecasts, valuations and investment ratings. The company is a regional commercial enterprise that is gradually promoting the layout of the field of Chinese medicine tablets and formula granules. There is room for long-term performance growth. The first forecast for 2016-2018 EPS is 0.32/0.35/0.39 yuan, corresponding to 2016/2017/2018 PE of 96, 88, and 79 times. The company's current main business valuation is relatively high, so no ratings are given. Investors are advised to pay attention to the company's medium- to long-term growth value.