Results for the first half of fiscal year 2017: Chuangmei Pharmaceutical recorded revenue of 1904 million yuan, an increase of 7.09% over the same period last year (contrast: 8.72% year-on-year increase in the first half of 2016). Thanks to the flattening of channels and the expansion of business scale, gross profit margin rose 0.90 percentage points year-on-year to 6.47%. Dragged down by financial charges and rising sales and distribution costs, shareholders' net profit increased moderately by 14.27% year-on-year to 42.0 million yuan.

Net profit for shareholders in fiscal 2017 is expected to be the same as in previous years, despite significant profit growth in the first half of fiscal 2017, taking into account: 1) the gross margin for the whole year is generally lower; 2) financial expenses will soar due to the increase in borrowing (which is used for business expansion); 3) sales and distribution costs will rise as a result of business expansion and channel flattening; and 4) exchange earnings will decline significantly.

Remain optimistic about earnings for fiscal year 2018 and beyond, taking into account: 1) strong revenue growth is expected (especially in fiscal year 2018) as the contribution of new business in Zhuhai, Guangzhou and Shenzhen increases; 2) gross profit margin is expected to continue to rise; 3) as investment costs associated with new business are expected to be spent in fiscal year 2017, expense rates in fiscal year 2018 and beyond are expected to remain relatively stable 4) focusing on the business related to the pharmaceutical retail market, the company expects not to be affected by the implementation of the two-vote system and to benefit from prescription outflow (which will boost sales in the pharmaceutical retail market).

Fine-tune the net profit per share for the fiscal year 2017-2019 to 0.535, 0.649, 0.790. Maintain the investment rating of "Collection" and the target price of HK $8.80, which corresponds to the price-to-earnings ratio of 14.0x / 11.5x for FY2017 / FY2018.