Key investment matters: The company announced the 2020 three-quarter report, achieving revenue of 1.109 billion yuan, an increase of 14.68% over the previous year; realized net profit of 294 million yuan, an increase of 35.89% over the previous year; realized net profit after deduction of 264 million yuan, an increase of 26.39% over the previous year; and diluted EPS of 0.62 yuan. The company's performance is generally in line with expectations. Among them, Q3 achieved revenue of 293 million yuan in a single quarter, a year-on-year decrease of 21.90%; realized net profit of 74.31 million yuan, a year-on-year decrease of 27.03%; and realized net profit of 56.16 million yuan, a year-on-year decrease of 45.28%. Ping An's view: The decline in Q3's performance in a single quarter was mainly affected by the increase in downstream inventories due to the pandemic: in the first three quarters of 2020, the company achieved revenue of 1.109 billion yuan (+14.68%) and net profit of 294 million yuan (+35.89%), which is basically in line with expectations. Among them, Q3 achieved revenue of 293 million yuan (-21.90%) in a single quarter and net profit of 74.31 million yuan (-27.03%). We believe that the decline in Q3 performance was mainly affected by the transmission of the epidemic from the formulation side to the API side. 2020H1 was affected by the epidemic and the inventory of downstream pharmaceutical customers increased, while pharmaceutical sales declined markedly. The overall number of anti-infective drugs in sample hospitals fell 32% in the first half of the year. As a result, downstream inventories increased significantly, and Q3 API procurement volume decreased. Among them, we determined that sulbactam and tazobactam were more affected than those of penem and antiviral products. Further enhance the company's position in the field of peinamol and anti-virus through fixed increases: In 2020, the company plans to increase about 1 billion yuan for the Fuxiang Biomedical Project and the Navir intermediates project with an annual output of 616 tons. Among them, the Fuxiang Biomedical project includes a production capacity of 600 tons of 4-AA and 200 tons of meropenem. Currently, the total production capacity of 4-AA for Peinan products on the market is about 800 tons, of which Fuxiang is about 200 tons. The remaining production capacity is mainly in Haixiang and Jiuzhou. We believe that once the implementation of the fixed increase project is completed, it will further enhance the company's dominant position in the field of peinam-based and anti-virus. Actively expand downstream of the industry chain and enhance initiative: In 2019, the company issued convertible bonds to raise capital for the 450 ton piperacillin/tazobactam (8:1) sterile powder project, which helped the company upgrade from non-sterile to sterile APIs; Fuxiang (Dalian), as one of the pharmaceutical business platforms, agatuban has been successfully approved; the company signed a cooperation agreement with the Jingdezhen People's Government to obtain 1001 mu of biomedicine. Project land will become the company's main base for pharmaceutical production in the future, and the possibility of the company's future CMO business is not ruled out. Profit forecast and investment rating: The company's main varieties have a good competitive pattern, and product reserves continue to be abundant, actively extending and upgrading to the downstream of the industrial chain to open up room for growth. Considering the decline in Q3's performance in a single quarter, downstream inventories need a certain amount of time to digest, we lowered the company's net profit forecasts for 2020-2022 to 381 million, 450 million, and 513 million yuan (original forecasts were 401 million, 473 million, and 540 million yuan), respectively, and the EPS was adjusted accordingly to 0.81 yuan, 0.96 yuan, and 1.09 yuan (the original forecast was 0.87 yuan, 1.02 yuan, and 1.17 yuan). The current stock price corresponds to PE 16 times in 2021, and the company's characteristics The price ratio of the API is outstanding, and the “recommended” rating is maintained. Risk warning: 1) Market competition risk: The company gradually begins research and development of sterile APIs and formulation technology, combining it with the company's existing API production advantages to ensure the company's ability to continue to grow in the future. If the company is unable to smoothly expand existing products downstream or enrich product lines, future market growth space and competition will adversely affect the company's operations. 2) Risk of environmental incidents: The company's main business is in the API and intermediates industry. The production process has a great impact on the environment. There is a risk of environmental incidents such as pollutant leakage and substandard emissions due to human or other factors. 3) R&D risk: Currently, the company has many research projects and is in a relatively early stage. The R&D risk is high and investment is high. There is a possibility that the company's R&D projects will fail and progress below expectations.