Incident: On January 4, Fuan Pharmaceutical issued an announcement that it intends to purchase 100% of Chu Pharmaceutical's shares by issuing shares and paying cash. Of these, 65.5469 million shares will be issued at a price of 14.65 yuan/share for payment of 960 million yuan, and 540 million yuan for cash payment. At the same time, 505.11,900 shares were issued to raise 740 million yuan in supporting capital to pay cash consideration, the target company's new product development projects, the target company's purchase of land, intermediary agency expenses, and supplementary operating capital of the target company. Comment: Zhichu Pharmaceutical specializes in gentamicin sulfate and lipoic acid. Gentamicin sulfate APIs and injectable lipoic acid are the main products of Zhichu Pharmaceutical. From January to September 2015, the sales revenue of the two reached 81% and 10%, respectively. Gentamicin sulfate (APIs, tablets, injections) is an aminoglycoside antibiotic. Currently, it is an antimicrobial drug of unrestricted use in all provinces and cities, and is affected by restricted anti-bacterial policies. The global sales of gentamicin sulfate APIs in 2013 was about 1.1 billion yuan, and the global market share of Zichu Pharmaceutical was about 25%; lipoic acid (APIs, injections) is a diabetes treatment drug, mainly used to reduce blood sugar concentration. Revenue has increased rapidly in the past three years. The exclusive dosage form of lipoic acid dispersible tablets developed by the company, which can be directly administered or swallowed, is expected in 2018 The production registration application was declared in the third quarter, and the market potential after marketing is more than 3 times that of injectable drugs. Outreach mergers and acquisitions have gone to the next level, and are likely to improve performance. The company continues to broaden its product line and expand sales scale through external mergers and acquisitions. In 2015, Ningbo Tianheng boosted the company's performance. In 2016, it will also benefit from a merger of Zhichu Pharmaceutical. In 2016, it will also benefit from the merger of Zhichu Pharmaceutical. The trading partners Zhichu Group, Cable Factory, Chulin Investment, and Chu Feng's investment promises, withheld non-net profit of no less than 100 million yuan or 120 million yuan in 16-17. After the issuance is completed, the company's total share capital will increase from 282 million shares to 398 million shares, and the EPS in 16-17 after considering dilution is 0.52 yuan and 0.63 yuan. There is synergy in business. There is strong synergy between Zhichu Pharmaceutical and the company's current product line. Zhichu Pharmaceutical has many years of technology accumulation in large-scale fermentation and separation and purification of microorganisms, and Fuan Pharmaceutical has a certain leading edge in chemically synthesized pharmaceuticals. After the transaction is completed, the two sides will each use their leading edge in their respective fields, improve the upstream and downstream relationships in the industrial chain, and enhance the company's overall profit level. Maintain a “Recommended” rating. The profit forecast is maintained for the time being. The company's 2015-2017 EPS is expected to be 0.28 yuan, 0.38 yuan, and 0.46 yuan, and the price-earnings ratio corresponding to the current stock price of 18.95 yuan is 68 times, 50 times, and 41 times, respectively. The “recommended” rating was maintained in view of the increase in performance brought about by the merger, the increase in the valuation of major specialties, and expectations for subsequent mergers and acquisitions. Risk warning: 1. The tender falls short of expectations; 2. The risk of new drug approval; 3. The risk of mergers and acquisitions.