Event: The company released its 2016 mid-year report. In 2016, H1 achieved operating income of 1,180 billion yuan, an increase of 13.33% over the previous year; realized net profit attributable to shareholders of listed companies of 26.1144 million yuan, an increase of 255.24% over the previous year, corresponding to an EPS of 0.0782 yuan, and achieved rapid growth in performance. Comment: The pharmaceutical sector's performance reversed in the first half of the year. The company's pharmaceutical sector achieved revenue of 167 million yuan and net profit of 127.534 million yuan in the first half of the year, an increase of 368.88% over the previous year, achieving a sharp reversal. The reason is, on the one hand, due to the sharp rise in prices of APIs such as nystatin, and the gross margin level increased significantly (+10.71%); on the other hand, production capacity was gradually released after the certification of the oral solid preparation production line was completed. It is expected that lornoxicam will maintain a growth rate close to 20%; the problem of the high production cost of adenosylmethionine has been solved relatively well. It has now entered the stage of large-scale expansion of production. It is expected to be released rapidly in the context of strong downstream demand, a good competitive pattern, and steady progress in tenders, and is expected to become a major variety of over 100 million yuan within two years. I am optimistic about the strategic layout of the company's traditional Chinese medicine diagnosis and treatment for a long time. The company is deeply involved in the traditional Chinese medicine industry chain and is actively expanding in the fields of Chinese herbal medicine cultivation, Chinese medicine tablet wholesale, retail and traditional Chinese medicine diagnosis and treatment services. The company added 5 Chinese herbal medicine cultivation bases in the first half of the year, with a total of 15 bases, and relied on the Chinese medicine tablet quality control technology engineering laboratory to continue to improve the quality of Chinese herbal medicines; at the same time, with the completion of Shaoxing Zhenyuan GMP certification, the large-scale, standardized and modern development of Chinese medicine tablets is expected to accelerate; in addition, the company adheres to the “famous store, famous doctor, and famous medicine” business model, and the retail sector achieved rapid growth (net profit: 8.2532 million yuan, +23.17% year-on-year). The company opened 5 new retail pharmacies in the first half of the year, and is expected to expand at an accelerated pace in the future, Traditional Chinese medicine diagnosis and treatment business It is expected that the increase will continue. Joining hands with Shaoxing No. 2 Hospital, we took the first step in foreign cooperation. The company signed a strategic cooperation agreement with Shaoxing No. 2 Hospital on July 7, taking the first step in foreign cooperation. Shaoxing No. 2 Hospital is the oldest grade III hospital in Shaoxing. It has rich resources for famous and old traditional Chinese medicine practitioners. Through partner companies, it can use its perfect training system to provide systematic training for its own traditional Chinese medicine talents and accelerate the sustainable development of the company's traditional Chinese medicine practitioner resources. Referring to the successful cooperation case between Gushengtang in Guangdong and Guangzhou University of Traditional Chinese Medicine, we believe that this move marks the first step in the company's foreign cooperation, and it is hoped that the company's cooperation model will continue to be replicated in Zhejiang Province in the future. risk factors. Revenue from core drug sales and the pace of pharmacy expansion fell short of expectations. Maintain a “buy” rating. As a scarce target for expanding clinical medicine business in A-shares, the company expects to prioritize sharing industry opportunities for traditional Chinese medicine diagnosis and treatment in the future; at the same time, the company's pharmaceutical sector achieved a sharp reversal in the first half of the year, and the release of varieties such as adenosylmethionine can be expected. It is expected that the company's 2016 performance will continue to grow rapidly in the first half of the year. We maintain our forecast that the company's 2016/2017/2018 EPS will be 0.21/0.27/0.34 yuan, taking into account the company's performance elasticity, market capitalization scale and comparable company valuation, giving the company 63X PE in 2017, corresponding to the target price 17.01 yuan, maintaining the “buy” rating.