Comment: The rapid rise in net profit is due to the low base. The company's operating income in 2011 increased by 41.18% year on year, but due to changes in revenue structure, gross margin fell 6.56 percentage points year on year, resulting in operating profit of only 4.23 million yuan, down 65.32% year on year. Since the total cost for the period was 29.1.94 million yuan, compared to the scale of operating profit, the change will have a great impact on the company's net profit. At the same time, due to the low profit level in the base period of 2011, the 2012 annual performance and growth rate were significant. Profitability needs to be improved. The company is a leading local pharmaceutical enterprise in Anhui Province. Its main business is divided into pharmaceutical manufacturing and pharmaceutical distribution. The company's pharmaceutical industry business revenue and gross margin growth rate are relatively stable. However, in recent years, the pharmaceutical business has grown rapidly, and its market position has been consolidated. Currently, the share of revenue from the pharmaceutical wholesale business is gradually rising. In the first half of 2012, the share of wholesale business revenue was 45.30%, up 13.20 percentage points from the previous year, and its current gross margin level is low, at 4.20%. The gross margins of the company's chemicals and biopharmaceuticals are high, but in the first half of the year, their respective gross margins were only 37.28% and 42.68%, which is still low compared to similar products of other listed companies. Optimistic about the anti-cancer implants market. Cisplatin and methotrexate anti-cancer implants developed and produced by the company's joint venture subsidiary are new anti-cancer drugs. Compared with traditional chemotherapy treatment, they have advantages such as reducing the systemic toxicity of anti-cancer drugs and improving local tumor suppression efficiency. We are optimistic about the future market for anti-cancer implants. If such products are successful, they may provide a new impetus for the company's profits, but at present, there is still a long way from large-scale profits. Earnings forecasts and ratings. The company's expected profit level for 2012 did not exceed our forecast based on the three-quarter report. We expect the company's 2012-2014 EPS to be 0.08 yuan, 0.09 yuan, and 0.10 yuan respectively. Based on the latest closing price, the corresponding dynamic price-earnings ratios are 66 times, 66 times, and 59 times, respectively, and the valuation is too high. The profitability of the company's current business is not strong, and the development of the chemical pharmaceutical and biopharmaceuticals business is slow, making it difficult to achieve rapid profit growth under the current model. Combine the above factors to maintain the company's “neutral” investment rating. Risk warning. 1) The risk of drug prices being reduced due to policy regulation; 2) the risk of profit falling due to too low tender prices; 3) the risk of new drug development, approval, promotion, etc. falling short of expectations.