Event: on July 4, Fu'an Pharmaceutical Co., Ltd. announced that it is expected to return to its mother in the first half of 2016 with a net profit of 7700-85 million yuan, an increase of 181 percent over the same period last year, in line with expectations.

Comments:

The main business bottomed out and rebounded, Ningbo Tianheng contributed to the performance increment. Although the company's antibiotic API and preparation business is difficult to maintain growth under the background of stringent anti-resistance policy and lagging bidding, the market demand for aztreonam, sulfampicillin sodium, nicergoline and hydrocortisone is relatively rigid, and downstream orders are stable. We previously judged that the 15-year main performance has reached the bottom, from the 16-year quarterly report and medium report forecast, the reversal has been confirmed. In addition to the year-on-year increase in profits, in addition to the bottoming out of the main business, there is also part of the increment from Ningbo Tianheng (which began to merge in May last year). It is expected that Tianheng can easily achieve its performance commitment in 16 years (deducting 50 million yuan in net profit after deducting it).

It is only known that the consolidation began in June, and the full-year results are expected to exceed expectations. Only Chu Pharmaceutical's biological fermentation technology is in the lead in China, which can partially replace the chemical synthesis route of existing products and improve the profitability. Only Chu Pharmaceutical began to consolidate in June this year, reporting a profit of about 10 million. According to the performance commitment, it is expected to contribute 60 million of the net profit in 16 years, only Chu's lipoic acid for injection is in a period of rapid growth, and the core team is fully motivated. we think the performance this year is expected to exceed expectations.

With M & A genes, transformation is still on the way. The mergers and acquisitions in the past two years revolve around the existing main business, ensuring the performance growth in the next three years, the company is still on the road of transformation, and the new extension layout is worth looking forward to.

Maintain the recommended rating. Only Chu Pharmaceutical began to consolidate in June this year, and it is estimated that the EPS from 2016 to 2018 will be 0.57,0.83,0.98 yuan, corresponding to the price-to-earnings ratio of 21.45 yuan on July 4, which is 38 times, 26 times and 22 times respectively. Maintain the "recommended" rating, taking into account the performance improvement and transformation expectations brought about by the consolidated table.

Risk tips: 1, bidding is lower than expected; 2, new drug approval risk; 3, M & A risk.