Performance fell short of expectations Shuanglu Pharmaceutical announced the 2016 interim report results: operating income of 472 million yuan, down 12.32% year on year; net profit attributable to parent company was 254 million yuan, down 33.10% year on year, corresponding to earnings of 0.37 yuan per share. The development trend is that the main products are under pressure, and revenue is declining year on year: In the first half of 2016, the company's revenue declined year on year. We think the main reason is that in the context that the original product line, including Beco Energy, has already entered health insurance in most regions of the country, is under heavy pressure on medical insurance fees, and growth is gradually slowing down. The company's product line is currently in a period of transformation, and the development of new varieties is critical to the company's growth. The company's lenalidomide has entered the priority review process, and the approval process is expected to accelerate: on April 24, the CFDA website announced that the company's declared product lenalidomide has entered the priority review process, which means that the company reports that production progress is expected to accelerate. As a major variety of celgene, lenalidomide has global sales of nearly 5 billion US dollars. We expect the market size to exceed 1 billion yuan after listing in China, which is worth focusing on. It is expected that the company's product line will be upgraded: Subsequent companies will focus on building a diabetes product line. Varieties such as dagliflozin and casagliflozin have already been submitted for clinical research, and GLP-1 analogue products have entered pre-clinical safety evaluation. The Canadian subsidiary's 23-valent pneumonia vaccine has also entered the clinical research stage, while monoclonal antibody product line development is also progressing. Against the backdrop of a slowdown in the growth rate of the company's original product line, the company urgently needs to promote the upgrading of the product line. In recent years, the company has increased investment in R&D and promoted research and development in the fields of major diseases such as tumors, cardiovascular disease, and diabetes. It is hoped that the launch of new products will bring continuous growth to the company. Profit Forecast We lowered our earnings per share forecasts for 2016 and 2017 by 6.83% and 11.6% from RMB 0.89 and $0.95 to RMB 0.83 and $0.84 respectively. The year-on-year decline was 1.2% and the increase was 1.4%, respectively. Valuation and recommendations Currently, the company's stock price corresponding to the 2016/2017 EPS is 39 times and 38 times, respectively. Considering that the innovative drug lenalidomide is expected to be approved, we maintain the recommended rating, but raised the target price by 11.43% to RMB 39, which is 20.93% higher than the current stock price. The target price corresponding to the 16-year P/E is 47 times. Risk The risk that new product development progress falls short of expectations; the risk that existing product lines will continue to decline.