Incident: The company released its 2020 three-quarter report in the evening. In the first three quarters of 2020, the company achieved total revenue of 1,108 billion yuan, an increase of 14.68% over the previous year; realized net profit of 293 million yuan, an increase of 35.89% over the previous year; and a year-on-year increase of 26.39% after deduction. Key investment points: The pandemic disrupted the third quarter performance growth rate, and it is expected that Q4 will improve significantly. On a quarterly basis, the company's net profit for 2020 Q3 was 75 million yuan, down 27% year-on-year and 45% month-on-month, with varying degrees of decline from year to month. We think there are the following two factors: First, last year was affected by the explosion in Yancheng and the price drop of the main ingredient 6-APA, and the company's core products benefited greatly, making the profit base of Q3 high last year; second, the downstream products of the company are taking antibiotics and their compound injections. The COVID-19 pandemic has drastically reduced the number of visits to domestic hospitals this year. Downstream companies are currently in the inventory stage. ratio Decreased over the same period However, we believe that the impact of the epidemic is only a short-term disruptor. Hospital visits have basically returned to pre-epidemic levels, and inventory digestion time is not expected to be too long. As a leading global beta-lactam API company, the company has significant advantages in quality management and cost control, and it is expected that product sales will continue to increase in the future, and it is expected that Q4 will improve significantly. (1) Demand for sulbactan is weakening due to terminals. Demand for sulbactan is growing steadily. The company's sulbactan products are sold domestically, so the impact of the COVID-19 pandemic is obvious. At the same time, due to Huaxu's new production capacity in Inner Mongolia, the price of sulbactan showed a downward trend this year, falling from 590 yuan/kg in February at the beginning of the year to around 550 yuan/kg in September. We expect demand for sulbactan to pick up with the full recovery of domestic hospitals, leading to a further rebound in prices and sales. The quantity and price of tazobactam is relatively stable. The company's overseas sales ratio of tazobactam is large. Stable demand from overseas companies such as Feca has led to a steady increase in sales of tazobactam, and since there is currently no new production capacity for tazobactam, the price is stabilizing throughout the year, around 7,200 yuan/kg. As the company's tazobactam production capacity expands in the future, profits will further increase. (2) Carbapenem intermediates maintained a high boom, and MAP workshop production increased significantly. The company has a complete industrial chain from 4-AA intermediates to the main ring (MAP) of 4-AA, which is scarce in China. Downstream demand from Peinan is strong, and the 4-AA domestic market is in high demand. The price has remained at 1,800 yuan/kg this year. Since the company completed maintenance and production of the MAP workshop in the second half of last year, it has increased the proportion of 4-AA being further processed into MAP downstream. Therefore, MAP products contributed more to profits this year, and the MAP workshop has increased significantly. The new production capacity was realized one by one, laying the foundation for the company's long-term growth, and the two-way expansion of CDMO and formulations entered the harvest period. In recent years, the company has made full use of the capital market to raise capital and continue to invest in new projects through debt issuance and fixed increases. Trial production of the piperacillin-tazobactam 8:1 powder mix project has begun; the high-efficiency Peinan antibiotic project is under construction and is expected to be put into operation in the second half of next year; the subsidiary Naver intermediates are under construction, and the company's new production capacity projects will be implemented one by one, which will strongly support high future performance growth. The two-way expansion of CDMO and formulations has entered the harvest period. The new-generation antibiotic compound enzyme inhibitor AAI101 developed by the company in collaboration with Allecra in Italy has completed phase III clinical trials. It is expected to be declared in Europe and the US by the end of this year or the beginning of next year. The company's first CDMO project will soon be commercialized; the Dalian subsidiary's agacroban injection was approved in July this year and is currently in the commercial expansion stage, and the two-way expansion of the company's CDMO and formulation has entered the harvest period. Profit forecast and investment rating: We believe that with the gradual elimination of the impact of the epidemic, the company's core products will continue to grow rapidly, and new production capacity and new projects will continue to be put into operation to provide the foundation for the company's rapid future growth. EPS is expected to be 0.81, 1.02 and 1.23 yuan respectively in 2020-2022, corresponding to PE of 21.9, 17.4 and 14.4 times, respectively, maintaining the purchase rating. Risk warning: risk of API price fluctuations, new production capacity falling short of expectations, systemic risk.