1. Event Overview On October 26, 2016, the company released its 2016 three-quarter report. The company operated steadily in the first three quarters, achieving operating income of 1,773 million yuan, an increase of 13.22% over the previous year; net profit of 28 million yuan, an increase of 271.61% over the same period of the previous year; net profit after deduction of 24 million yuan, an increase of 242.08% over the previous year; and basic earnings per share of 0.08 yuan. 2. Analysis and judgment: The impact of the termination of G20 production on profit is limited. It is expected that the fourth quarter will recover. The company's operating income and net profit for the third quarter of this year were 592 million yuan and 1.5 million yuan respectively. We believe that pharmaceutical sales may have been affected to a certain extent due to the industrial shutdown during the G20 period, which led to a decrease in net profit in the third quarter compared to the first and second quarters, but since industrial revenue only accounted for 14%, the suspension of production had little impact on revenue in the third quarter. It is expected that with the recovery of industrial production and sales, net profit in the fourth quarter will increase rapidly. The main reason why the company's net profit in the first three quarters increased faster than the same period in 15 years was that the increase in profit, commercial restructuring, and resource integration continued to show results due to rising API prices. DTC Pharmacy is expected to continue to contribute to performance. The company is the commercial leader in Shaoxing, with the commercial sector accounting for 86% of revenue. The company has DTC pharmacies located around hospitals and large pharmacies, and is managed by the Zhenyuan chain, a subsidiary of the company. DTC Pharmacy mainly deals in imported anti-cancer drugs and other products. The average gross margin is around 5%-8%, but the sales volume is relatively large. Since it meets the needs of hospitals to reduce the share of drugs, it is expected that the layout will be relatively smooth. Benefiting from national policy support and optimistic about the prospects of traditional Chinese medicine consultation business In recent years, the country has successively introduced policies to support the development of the traditional Chinese medicine industry. The company focuses on the upstream extension of the traditional Chinese medicine industry chain. The upstream is a cultivation base for Chinese medicine tablets and Chinese herbal medicines, and the downstream is medical services based on traditional Chinese medicine consultations. The traditional Chinese medicine consultation business is located in pharmacies. Relying on the “Zhenyuantang” brand effect, doctors have strong resources and increased customer stickiness. In the future, the traditional Chinese medicine clinic business will be centered around Shaoxing to the surrounding area, and then expand outside of Zhejiang, becoming a new profit growth point. 3. Profit Forecast and Investment Suggestions We expect the company's 2016-2018 EPS to be 0.20, 0.23, and 0.25 yuan; corresponding PE is 72, 63, and 58 times, maintaining a “highly recommended” rating. 4. Risks suggest that prices of APIs and formulations are falling; the promotion of the traditional Chinese medicine sitting room model falls short of expectations.