Key investment events: The company released a semi-annual performance report. The net profit attributable to the company's shareholders in the first half of the year was 770-85 million yuan, an increase of 181.5%-210.7% over the previous year. The antibiotic industry bottomed out and rebounded, and the traditional main business is expected to pick up. After “resistance restriction” in 2011, domestic public hospital anti-infective drug sales began to rebound sharply in 2014, and the share rose to 21.7%, once again becoming the number one drug used by public hospitals. We believe that the domestic population base is large and demand for antibiotics is high, so it is difficult for the market size to decline in a fault pattern, and the antibiotic market will gradually stabilize in the future. Taking into account the parallel factors of Tianheng and Zechu, combined with the market development of some of the company's new market-competitive products (such as olacetam APIs), we expect the company's traditional main business to achieve 100% growth in the first half of the year. Tianheng Pharmaceutical has many types of specialty drugs, and its performance is likely to exceed expectations. Ondansetron, glasetron, toremifene, and dorsolifylline are the company's main specialty pharmaceutical products. Sample hospital data shows that these four products have a clear market position, and glasetron accounts for more than 60% of the total market share; toremifene is the only domestic product type, which can achieve import substitution under a new round of bidding; the docofylline API is one of only four domestic batches, and is expected to become a new highlight of the company's growth. In 2016-2017, Tianheng promised results of 50 million and 60 million yuan. We believe that Tianheng's specialty drugs toremifene and doxofylline are highly competitive. As the bidding process continues to advance, Tianheng Pharmaceutical's performance is expected to reach 60 million yuan and 70 million yuan respectively in 16-17. Only Chuqindamycin has been transferred from export sales to domestic sales, and there is plenty of room for performance improvement. Zhichu Pharmaceutical is one of the largest manufacturers and sellers of gentamicin APIs in China, and its market share has always been in the top five positions in the market. Since the domestic sales price of this variety is about 30% higher than the export price, Chu Pharmaceutical has actively adjusted its sales structure and expanded the domestic sales ratio in recent years. In 2013-2015, the share of export value gradually declined from 43% to about 23%. This is the main reason for the rapid growth of Zichu Pharmaceutical in the past three years. In 2016-2017, the company promised performance of 100 million yuan and 120 million yuan respectively. We believe that there is still a lot of room for improvement in the future domestic sales ratio of Zhichu Pharmaceutical's gentamicin products. It is a probable event that the domestic sales ratio of Zhichu Pharmaceutical's gentamicin products will exceed 20% in the next two years. Profit forecasts and investment advice. Considering the combined performance of Tianheng and Zhichu, it is estimated that in 2016-2018, the diluted EPS will be 0.53 yuan, 0.80 yuan, and 1.07 yuan, respectively, and the corresponding PE will be 40 times, 27 times, and 20 times, respectively. We believe that the recovery of the antibiotic market has brought new development opportunities to the company's traditional main business, and APIs and formulations for multiple products are expected to double; active extension acquisition strategies have also enabled the company's performance to increase rapidly. In the future, the company will enter a rapid development path and be upgraded to a “buy” rating. Risk warning: Risks such as anti-resistance policies, price reductions in drug tenders, and mergers and acquisitions companies' performance or failure to meet promises.