The company is expected to grow into a leading Chinese medicine formula granule enterprise in Zhejiang. Zhejiang Province has always been a major sales province for traditional Chinese medicine. With favorable policy incentives such as the liberalization of medical insurance, the formula granule market will usher in a period of rapid growth. We judge that the company's subsidiary Jingyuetang will become a leader in the province. Its competitive advantage is reflected in: first, the company has now registered more than 600 varieties of traditional Chinese medicine formula granules, which can basically meet the clinical formulation needs of medical institutions; second, in 2015, the company won the bid for the Zhejiang Traditional Chinese Medicine Formula Granule Research Special Fund and obtained the “Pharmaceutical GMP Certificate” for traditional Chinese medicine formula granules in January 2016. In July 2016, it won the bid for the procurement of traditional Chinese medicine formula granules from Zhejiang Traditional Chinese Medicine Hospital, all of which proved the company's strong competitiveness in the province. Third, the company already has production capacity for traditional Chinese medicine tablets and Chinese formula granules that can satisfy existing customers, and as a listed company, it can quickly seize the market with financing. The company's original pharmaceutical commercial business maintained relatively steady growth. Currently, the company's main business is pharmaceutical wholesale and chain retail. The revenue and gross profit of the wholesale business in 2015 were 1 billion and 68.92 million, respectively, accounting for 82% and 51%, respectively. The company's distribution areas are mainly in Shaoxing and Hangzhou, Xiaoshan, Yuhang and other regions. The company's wholesale business targets end customers such as medical institutions and retail pharmacies at all levels in cities and rural townships. The company's pharmacy chain mainly faces the Shaoxing and surrounding markets, and overseas expansion is not fast, so we expect the company's pharmaceutical commercial business to maintain relatively steady growth in the future. Investment advice: We believe that with favorable policy incentives such as the liberalization of health insurance, the formula granule market in Zhejiang Province will further usher in a period of rapid growth. As a listed company in Zhejiang Province, Jingyuetang Pharmaceutical, a subsidiary of Huatong Pharmaceutical, has an early layout and excellent texture, and is expected to become a leading local formulation granule enterprise. In the long term, with excellent product quality and terminal service capabilities, the company is expected to enter other domestic markets. We judge that the company's new production capacity for formula granules can add more than 500 million in revenue and more than 60 million in net profit. Due to the uncertainty of industry liberalization policies, we only consider the company's original business. The net profit for 2016 to 2018 is estimated to be 50.7 million, 55.53 million, and 62.74 million, respectively, with corresponding valuations of 88X, 80X, and 71X. The company's current market value is about 4.5 billion dollars, not counting the additional distribution, which is 5.3 billion. Although the current business valuation is high, considering the characteristics of the company's current small market capitalization and the enormous flexibility provided by the company's traditional Chinese medicine formula granules, it has been given a “highly recommended” rating. Risk Warning: 1. Policy progress falls short of expectations. 2. Accelerated competition has led to a decline in product profits.