Rich Chinese time-honored brands, layout of the whole industrial chain of traditional Chinese medicine development. The company was founded in Shanghai in 1929 and moved westward to Lanzhou in 1956. "Foci" is the first batch of "Chinese time-honored brands" recognized by the Ministry of Commerce. After nearly a hundred years of development, it has a good market foundation and extensive influence at home and abroad. The company has 467 drug production approval numbers, and year-round produces more than 110 products of 11 dosage forms, such as pills, tablets, granules, capsules, gels, etc. The company lays out the whole industry chain of traditional Chinese medicine, including planting and breeding, proprietary Chinese medicine manufacturing and large health industry.

Adhere to the large variety strategy, exclusive products are expected to contribute to performance flexibility. The company adheres to the strategy of large varieties, focusing on cultivating products such as Liuwei Dihuang pills, ginseng antler Guben Huanliao pills, compound Huangqi Jianpi oral liquid, donkey-hide gelatin, Shugan Xiaoji pills and so on. The company focuses on the performance flexibility of exclusive products. At present, it has 10 exclusive products and 215 base drug catalogue products. At the same time, it actively promotes exclusive varieties of Shugan Xiaoji pills and Xiaozhi pills into the new base drug catalogue.

The actual controller will be changed to Gansu SASAC, and the reform of state-owned enterprises will stimulate the vitality of enterprises. This acquisition will help to strengthen the integration of the traditional Chinese medicine industry chain in Gansu Province and revitalize Longyao with the help of the window of Foci. If this acquisition is successful, the company will timely launch equity incentives or employee stock ownership in the future; in terms of extension mergers and acquisitions, the company will give full play to the advantages of state-owned capital investment in Gansu State Investment Corporation. Timely acquisitions and mergers of high-quality targets that have a synergistic effect on the company's business development.

Investment suggestion: Foci Pharmaceutical is a high-quality Chinese time-honored brand, which puts forward "Western system of traditional Chinese Medicine" for the first time, creating a precedent for the industrialization of traditional Chinese medicine production. The company focuses on traditional Chinese medicine plus great health development strategy, will continue to benefit from the aging population and consumption upgrading trend. We are optimistic that the company will cultivate the five major markets of Northwest, Southwest, East China, South China and the world, constantly refine the management level and polish the gold-lettered signboard of Longyao. From 2023 to 2025, the company is expected to achieve a revenue of 12.22 trillion yuan, an increase of 20%, 28%, 32%, respectively, and a net profit of 1.26%, an increase of 19%, 33% and 36% respectively over the same period last year. The corresponding PE valuation is 4937, 27X, respectively, giving the "overweight" rating for the first time.

Risk hints: the risk of industry policy change, the risk of raw material price fluctuation, the risk of product promotion and sales falling short of expectations, the new plant reaching production below expectations, and the risk of unsuccessful change of shareholding.