The main investment point is the only pharmaceutical company with an entire antipyretic and analgesic industry chain. Among domestic pharmaceutical companies, the company is the only antipyretic and analgesic intermediates and APIs. It has obtained many DMF and COS licenses, and has sold to multinational giants such as Bayer/Pfizer all year round; in terms of pharmaceuticals, the company has carried out consistent evaluations of various pharmaceutical varieties. Pharmaceutical OEM has fully proved the company's solid process, and pharmaceutical exports are about to set sail. In the future, the domestic generic drug market will definitely belong to enterprises with high-quality APIs and formulations. It is expected that the company's accumulated industrial base in the past will usher in a revaluation through the four dimensions of API price increases, formulation acceleration growth, consistency evaluation, and pharmaceutical exports. APIs are facing supply-side contraction brought about by environmental protection. In recent years, domestic environmental policies have become increasingly stringent. The company has invested fully in environmental protection, and major varieties such as ibuprofen, aspirin, analgin, caffeine, and levodopa have obvious market share and cost advantages. The sharp increase in performance in the first three quarters of this year has partly reflected the performance flexibility brought about by API price increases; since the company's exports are mainly based on long orders signed once a year, it is expected that the signing of new orders in the fourth quarter of this year will lead to continued high growth next year. We expect the sales revenue growth rate of the company's API sector in 2017-19 to be 10.09%, 17.13%, and 9.91%, with gross margins of 32%, 34% and 35%. Sales and policy dividends fueled accelerated growth in the pharmaceutical sector. The company's six core drug varieties include Jining and Baochang, and new medical insurance. Jiaheluo was upgraded to category A, and Cuxin, Nilisu, and Shutaide all showed a rapid growth trend. Most of the company's core products have exclusive dosage forms. It is expected that the company's employees' incentives will improve after the shareholding plan, and the sales system will go deeper into the terminal, which will accelerate the release of core pharmaceutical varieties. The growth rate of the pharmaceutical sector (including industry and commerce) in 2017-19 is expected to be 20.51%, 20.75%, and 22.96% (of which the industrial sector will grow by about 30%), with gross margins of 27.5%, 29%, and 30%. The number of consistency evaluations filed is leading. At present, the company has registered 43 varieties of reference formulations, and 9 varieties have been evaluated for consistency. We believe that the company attaches great importance to resource investment and external cooperation. High-quality APIs and formulation processes have advantages, and are expected to increase the market share of generic drug products through consistent evaluation. If the market share is estimated to increase to 4.5% in 2020 and the overall growth of the industry remains stable at 10%, a three-year CAGR of about 31% can be obtained. Formulation exports are about to set sail. Xinhua Pharmaceutical has been providing contract manufacturing for first-tier foreign pharmaceutical companies for a long time, and the quality of the company's raw materials has also been recognized internationally. Currently, the company has 4 formulations with product regulations approved for listing in Europe. It is expected that in the future, superior varieties such as ibuprofen will be declared for ANDA in the US to gradually upgrade the industry from API exports to pharmaceutical exports. Risk factors: Product price maintenance falls short of expectations, industry competition intensifies, and development of new varieties falls short of expectations. Earnings forecasts, valuations and investment ratings. We believe that the company's pharmaceutical business is growing at an accelerated rate, and APIs are benefiting from price increases brought about by supply-side contraction. Pharmaceutical exports are about to set sail, and the consistency evaluation layout is leading, giving 30 times PE in 2018. The company's 2017-2019 EPS is expected to be 0.49/0.72/1.00 yuan, and the corresponding valuation target price is 21.46 yuan. For the first time coverage, a “buy” rating is given.