Items:

According to the company's annual report for 2017, the operating income was 4.516 billion yuan, an increase of 12.47 percent over the same period last year; the net profit belonging to shareholders of listed companies was 210 million yuan, up 71.42 percent from the same period last year; and the net profit after deduction belonging to shareholders of listed companies was 168 million yuan, an increase of 66.70 percent over the same period last year. As expected.

Comments:

The increase in the price of raw materials and the volume of core preparations drive high performance growth. During the reporting period, the company achieved sales revenue of 1.96 billion yuan in APIs, an increase of 10.97% over the same period last year. Major varieties such as ibuprofen and levodopa recorded steady growth, while characteristic APIs such as glimepiride and meloxicam grew rapidly. Although the annual sales growth rate is slightly lower than expected due to the regulation and control of production and delivery in the second half of the year, the company's solid investment in environmental protection and the quality of APIs have been fully recognized by multinational pharmaceutical companies, and it is expected that 2018-19 will still benefit from the supply contraction under the tightening of domestic environmental protection. In terms of preparations, the company's overall preparation sales revenue reached 1.98 billion yuan, an increase of 13.42% over the same period last year, and the growth rate slowed down in the second half of the year. Among them, six core preparation varieties realized a 33.91% year-on-year increase in sales revenue under the internal sales reform and the dividend of some new varieties into medical insurance.

Investment in research and development has been increased, generic drug consistency evaluation and ANDA declaration have been promoted. In 2017, the company's annual R & D investment reached 160 million yuan, an increase of 47.85% over the same period last year. Glimepiride tablets, captopril tablets and other 4 varieties, 5 documents successfully passed the BE, is expected to apply for consistency evaluation and approval this year. Another 5-6 varieties are expected to complete BE and declare this year. In addition, the company has obtained the production approval of levodopa, and non-buster is about to declare production. In terms of preparation exports, the company's export sales nearly doubled in 2017, ibuprofen capsules and loperamide capsules officially entered the British market; signed the CMO agreement with Sinochem DSM for the Atto vastatin calcium tablet project, and completed DMF registration in 13 products and 32 countries.

Sales and R & D side changes will continue to deepen. According to the company's annual report, the implementation of the large preparation strategy will be accelerated in 2018 and the incentive intensity and system for preparation sales will be improved. The brand general medicine strategy will be implemented to create a famous brand of antipyretic and analgesic drugs. Research and development strives to obtain 2 new variety document numbers, 8 varieties through consistency evaluation study (BE), continue to promote the DMF registration of API, speed up the ANDA registration of existing products, and strive to start the ANDA declaration of 2-3 varieties this year. The company's changes in preparation sales and R & D continue to push forward, bringing a solid foundation for performance growth.

Risk factors: the progress of research and development is lower than expected, and the price of drugs is reduced by bidding.

Maintain a "buy" rating. We believe that the company has accelerated the growth of its preparation business, benefited from the price increase brought about by supply-side contraction, accelerated the export of preparations, and led the layout of consistency evaluation. Taking into account the increase in short-term costs and the uncertainty of API prices, the EPS forecast for 2018-19 is slightly reduced to 0.60 EPS 1.07 yuan (the original forecast for 2018-19 is 0.62 shock 0.86 yuan), and 30 times of 2018 PE is given, corresponding to the target valuation price of 18.13 yuan. Maintain a "buy" rating.