Investment points 1. Event: The company released its 2016 annual report and dividend plan. In 2016, the company achieved operating income of 313 million yuan, up 1.28% year on year; net profit attributable to owners of listed companies was 66 million yuan, down 35.83% year on year; net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss was 62 million yuan, down 35.83% year on year. In the face of a slight increase in the company's overall revenue, the decline in net interest rate fell to 21.23% from 33.50% in 2015, and the overall performance showed a decrease of 35.83%. The dividend plan was introduced. Based on 141,875,700, a cash dividend of 2.50 yuan (tax included) was distributed to all shareholders for every 10 shares, 0 shares (tax included) were distributed to all shareholders, and a capital reserve fund was used to transfer 0 shares to all shareholders for every 10 shares. 2. Our view: 1. The company focuses on hepatitis B drugs, and the steady growth of entecavir supports the company's main business. The company specializes in R&D, production and sales of nucleoside anti-hepatitis B drugs. The main products include argandine (adefovir ester), hegandine (lamivudine), and engandine (entecavir), and these three products are the company's main sources of revenue. In 2016, its sales revenue reached 312 million yuan, accounting for 99.90% of overall revenue. China is a region where hepatitis B virus infection is highly prevalent. Currently, there are about 100 million hepatitis B carriers in the country, of which more than 20 million are chronic hepatitis B patients. Currently, patients in China who have received standardized treatment account for less than 20% of patients requiring treatment. The population base of patients with chronic hepatitis B is large, and the treatment penetration rate is low. In the future, with the improvement of living standards and the promotion of chronic disease education, more hepatitis B patients will receive standardized drug treatment, so there is still plenty of room for market growth for antiviral hepatitis B drugs in the future. The company has long been optimistic about the antiviral hepatitis B drug market. At the same time, the company is currently the only pharmaceutical company in China that also has lamivudine, adefovir ester, and entecavir products. In the future, the company will also enjoy steady growth brought about by market space growth. The anti-hepatitis B drug market is very competitive. Squibao, Zhengda Tianqing, and GlaxoSmithKline rank in the top three, and the company currently ranks fourth in market share. In 2016, with medical insurance fee control and assessment of the share of hospital drugs, the market growth of nucleotide anti-hepatitis B products slowed. Coupled with the increase in competition, the winning bid prices of the company's products fell in many regions, putting pressure on the company's performance. In the face of a slight increase in the company's overall revenue, the decline in net interest rate fell to 21.23% from 33.50% in 2015, and the overall performance showed a decrease of 35.83%. The main reasons include insufficient revenue side motivation and a significant increase in cost side R&D expenses. Revenue side: The company's main products, with the exception of Engandin, sales revenue increased by 20.17% year on year, sales revenue of Forgandin decreased 24.18% year on year, and sales revenue of Heganding decreased 32.90% year on year. Entecavir is currently the main driving force behind the company's main business support. With its advantages of good efficacy, few side effects, and low drug resistance, entecavir gradually occupies the hepatitis B treatment drug market, accounting for more than 50% of the hepatitis market (data from public hospitals in key cities). Cost side: The cost side of the company in 2016 was mainly an increase in management expenses. The reason is that the company's fee-based R&D expenditure increased by 38 million yuan over the same period, with a growth rate of 170%; sales expenses increased slightly, mainly affected by the “two-ticket system” policy. The company increased the terminal development and sales promotion efforts of the direct sales model, and the share of the direct sales model increased from 43% to 46.85%. 2. By increasing investment in R&D to nurture new products, tenofovir is expected to promote the company's rapid development. The company's main business is slightly weak, mainly due to the slight lack of competitiveness in the current product line, especially the two main products, adefovir ester and lamivudine. Therefore, the company is also increasing its R&D investment. In 2016, it invested 68.1931 million yuan in R&D, accounting for 21.80% of total revenue, an increase of 159.68% over the previous year. High investment and high output, the company's product pipeline is rich, and the company has invested heavily in R&D. In 2016, the company obtained four clinical approvals for sofosbuvir APIs, sildenafil citrate, and sildenafil citrate tablets. At the same time, it submitted re-registration applications for entecavir APIs, entecavir capsules, and inbai hepatitis capsules, and obtained entecavir APIs, entecavir capsules, lamivudine tablets, green leaf fat tea, and five more hepatitis capsules Registration approval. Tenofovir fumarate dipyrifuroster APIs and capsules were recognized by the CFDA First in China, it obtained priority review and approval; the clinical study of tenofovir fumarate dipyrifuroxil capsules successfully passed clinical verification at the China Food and Drug Administration's review and testing center. In 2016, the company established Guangshengtang's “Curing Hepatitis B Peak Program” and an innovative drug development plan for the treatment of fatty liver disease and liver cancer, and cooperated with Shanghai Pharmaceutical Kangde New Drug Development Co., Ltd. to develop 2 new first-class drugs for hepatitis B, 1 innovative drug for fatty liver disease, and 1 innovative drug for anti-liver cancer. Tenofovir ester - the flashpoint of the company's future performance Tenofovir ester is a novel nucleotide reverse transcriptase inhibitor developed by Gilead in the US. The product was approved for sale in the European Union and the US in 2008, mainly for the treatment of hepatitis B. Tenofovir ester is considered the drug with the best curative effect among the new generation of hepatitis B antiviral drugs. It is mainly reflected in its strong drug resistance and is suitable for a wider range of people (pregnant women and nursing women). In 2009, GlaxoSmithKline and Gilead reached a patent rights transfer agreement. GlaxoSmithKline obtained exclusive marketing rights for treatment of chronic hepatitis B in adults in China, and domestic hepatitis B patients were able to use tenofovir ester. Currently, domestic tenofovir ester has not been included in the medical insurance catalogue, so the high cost is one of the barriers to the widespread release of traditional Chinese medicine products. In June 2016, the Health Planning Commission announced the results of the first batch of national drug negotiations. Tenofovir fumarate dipyrifuroxil tablets from GlaxoSmithKline became one of the three drugs in the catalogue. The negotiated price was 490 yuan, and the price drop reached 67%. With the publication of the national negotiation catalogue, the domestic market threshold for tenofovir is expected to be broken through. At the same time, more and more provinces are including negotiated drugs in the provincial medical insurance catalogue, which is more conducive to the distribution of tenofovir varieties at terminals. Currently, there are not a few companies that have been approved to carry out clinical trials with tenofovir fumarate, but only the company's products included in the priority review category have been included in the priority review list. The company's product is likely to become the first domestic imitation of this drug in terms of hepatitis B application. Chengdu Beite products have been approved for production. The approved application is AIDS and cannot be used for hepatitis B treatment, so the company has plenty of time to complete the review and approval of tenofovir fumarate dipyrifuroxil tablets as soon as possible. At the same time, since the drug is a new drug newly approved within three years and still needs to be evaluated for consistency, the company has already begun to seize the first-mover advantage in the market as much as possible when approved generic drug manufacturers are limited. Tenofovir ester is expected to become a breakthrough point in the company's performance explosion and play a key role in the company's path to becoming a leading enterprise in the field of liver disease in China. 3. Stock incentives reflect the company's determination to develop. At the end of August 2016, the company officially introduced a restricted stock incentive plan. The final number of restricted shares granted to 127 people, including Deputy General Manager Ye Baochun, was 1,875,700 shares, of which the grant price was 31.96 yuan per share. The company implemented and completed the grant of restricted shares in December. The company's implementation of an equity incentive plan will help the company further improve the corporate governance structure, promote the company's establishment and improvement of incentive and restraint mechanisms, fully mobilize work enthusiasm, and effectively combine shareholders' interests, corporate interests and personal interests of operators, so that all parties can focus on the company's long-term development 3. Profit forecast and investment suggestions: We expect the company's sales revenue in 2017-2019 to be 415 million yuan, 563 million yuan and 794 million yuan, and net profit attributable to the parent company is 93 million yuan, 128 million yuan and 182 million yuan, corresponding The diluted EPS is 0.65 yuan, 0.90 yuan, and 1.28 yuan respectively, and the corresponding PE is X76, X55, and X39. We believe that the company has been deeply involved in hepatitis B antiviral drugs for many years, the product structure is perfect, and engandin has maintained a steady growth trend. The company has increased its direct sales efforts to adapt to the “two-ticket system” trend and actively invests in the R&D approval of tenofovir ester. It is expected that this product will be approved and put into production in the short term to support the company's future development. Therefore, for the first time, we covered, that is, we gave a “buy” rating. 4. Risk warning: Drug review and approval progress is lower than expected; company drug bidding is lower than expected; R&D pipeline progress is lower than expected