2013 the results were in line with expectations and the growth was strong. Sales and profits increased by 6.8% and 33.7%, respectively. Growth outpaced the industry's average growth of 18% in 2103. The increase in Leyalty's share of sales led to a rise in gross profit margin to 44.1% (2012 Groupe 37.9%). The increase in gross margin also led to an increase in net profit margin to 16.7% (13.4% in 2012). The company plans to pay a dividend of HK $0.068 per share. The dividend payout rate for the whole year is 37%, reflecting a high return to shareholders.

The Ann series and Lei Yi de continue to drive strong growth. Sales of the two main growth points, the antihypertensive drug series and the anti-hepatitis B drug Lei Yi, increased by 28% and 43% respectively, and profits are expected to contribute more than 90%. Considering the annual growth of more than 20% of China's antihypertensive drug market, the low utilization rate of antihypertensive drugs, the company's vigorous promotion of retail pharmacies and community hospitals, and the rapid growth of the new generation of antihypertensive drugs Annexi and Anmeiping, we expect the Ann series to maintain growth of more than 20% in the future. Considering the huge population of hepatitis B in China, the replacement of the older generation of anti-hepatitis B drugs and the gradual entry into major drug consumption provinces such as Jiangsu, Guangdong and Zhejiang, we expect Lei Yi to maintain a growth rate of more than 30% in the future.

A strong drug product line ensures continued growth. The rate of R & D expenditure has risen to 3.8% (2012), reflecting the importance the company attaches to R & D, which is the core growth driver of the company. We expect the company to launch more than 5 new drugs in the next 3 years, focusing on hypotension, Alzheimer's disease, hyperlipidemia and other areas. We believe that depending on the company's market position in cardio-cerebrovascular drugs, these new drugs will help maintain the company's rapid growth.

Valuations are very attractive, repeat buying. We maintain the 2014-16 EPS forecast of RMB 0.26, 0.32, 0.39 (an increase of 34%, 24%, 24%, respectively over the same period last year). Our target price of HK $7.2 is 33% higher than the current share price. Although the share price has risen 113% since our recommendation, it now corresponds to a 14-year price-to-earnings ratio of 17 times 14 times earnings, and the PEG is only 0.7 times. The valuation is very attractive. Repeat buying.