Financially sound. Despite market concerns caused by the departure of the former CFO, both former CFO and current management said they were in a sound financial position. Management even said in a recent conference call that earnings growth in January-May was higher than expected. Stocks rebounded and the market regained confidence.

Lei Yi de continues to be the main growth point. Lei Yi de is the company's main profit contributor (about 40% in 2013) and a major growth point (about 43% in 2013). Management said Leidi's sales increased by more than 60% from January to May, mainly due to the winning of bids by some provinces in 13 years. Since the beginning of this year, Lei Yi de has won the bid in five provinces, laying a solid foundation for future growth. In addition to winning the bid in Hong Kong, the company is actively promoting the listing of Reid in Southeast Asia, Eastern Europe and South America. With the assistance of well-known multinational pharmaceutical companies such as Glaxo, we are optimistic about the company's overseas expansion.

Drug stocks are strong. Fifteen varieties are waiting for production approval, including 2 antihypertensive drugs (market capacity 80 billion), 1 lipid-lowering drug (market capacity 140 billion), 1 senile dementia drug (market capacity 180 billion) and 1 digestive tract drug (market capacity 10 billion). Nineteen varieties are in the research and development stage, involving cerebrovascular, digestive, hepatitis B, thrombus, spirit, diabetes, nephropathy and other fields. In terms of the company's smaller size, drug stocks are strong.

Excellent leadership. In terms of rich industry experience, clear strategy and excellent management skills, we have confidence in the new CEO. The company has the potential to become an excellent chemical company.

Individual shareholders need not worry about reducing their holdings. The company arranged a block transaction of 10 million shares for Mr. Liang on March 26. Mr. Liang is an individual shareholder and needs money to build an office building. At that time, many institutional investors were very interested in the company, but they were unable to buy a large number of shares because of poor liquidity. If Mr. Liang is really not optimistic about the company, he has the conditions to reduce all his holdings. But the fact that he still holds 6.2% equity (50 million shares) leads us to believe that his reduction is only due to personal financing needs, which does not mean that he is pessimistic about the future of the company. We don't expect him to reduce his holdings in the short term.

Keep buying. We maintain the 2014-16 EPS forecast of RMB 0.26, 0.33, 0.42 (year-on-year growth of 36%, 28%, 25%, respectively). The current share price corresponds to a 14-year price-to-earnings ratio of 18 times, while the PEG is only 0.7 times, compared with an industry average of 24 times. The target price of HK $7.5 corresponds to a 30% increase in room to maintain buying.