Performance was in line with expectations Shanghai Kaibao announced results for the first three quarters of 2016: operating income of 1,193 billion yuan, up 4.17% year on year; net profit attributable to parent company was 260 million yuan, up 2.15% year on year, corresponding to earnings of 0.31 yuan per share. The performance is in line with our expectations. The development trend is that profit growth is improving quarter by quarter, and growth has resumed. In 2016, 3Q had revenue of 309 million yuan, up 17.42% year on year (up 0.22% in the first half of the year), net profit of 68.48 million, up 5.23% year on year (up 1.10% in the first half of the year). Profit growth improved quarter by quarter, mainly because the company increased its efforts to promote phlegm clearing terminals. The company has completed the safety re-evaluation of 30,000 cases of phlegm fever-clearing injections. In the future, it will continue to re-evaluate the efficacy and economy of 10,000 phlegm fever-clearing injections, providing a stronger scientific basis for the safety of clinical medication for phlegm fevers. The product hierarchy is gradually being formed, and the revenue structure is expected to be diversified. Currently, the company is in phase III clinical research on butyl oil softgels (treatment for irritable bowel syndrome), phlegm relief capsules (treatment for migraine), Huadanshen (anti-insomnia), phlegm heatqing oral solution (new dosage form), and injectable duranamine (anti-tumor); phase II clinical research includes Youxindin capsules (anti-depression) and injectable paclitaxel micelles (anti-tumor); pre-clinical research has in vitro cultivation of bear bile powder technology; it is expected that the product team will gradually break the single tier in the future. The structure forms a more diversified product line around the major health sector to enhance profitability. Focusing on the fields of cardiovascular, cerebrovascular and anti-tumor, we will continue to expand. In recent years, the company has entered new industries through epitaxial extension, participated in Yizhong Biotech to develop “injectable paclitaxel micelles” (expected to be approved by the state in the second half of next year), and participated in Gobaid Biotech to introduce “injectable duranamine” (currently in the phase III clinical trial supplementary research stage), all of which are anti-cancer drugs with good market space. It is expected that in the future, the company will continue to expand the pace of extension and expand a wide variety of products. Our profit forecast remains unchanged for 2016/2017 EPS of 0.37 yuan/0.39 yuan, with year-on-year increases of 7.8% and 6.8%, respectively. Valuation and recommendations Currently, the company's stock price corresponding to 2016/2017 P/E is 30 times /29 times, respectively. We maintain our recommendation rating. Considering that the company's profit growth is improving from quarter to quarter, the product structure is continuously diversified, driven by the pace of extension, the target price was raised by 12.0% to 14 yuan. There is room for growth of 25.7% compared to the current stock price, which is 36 times higher than the current stock price, which is 36 times higher than the 2017 P/E. Price reduction pressure for risky traditional Chinese medicine injections; approval of new products fell short of expectations.