Performance exceeded expectations Aoyang Technology announced results for the first three quarters of 2016: operating income of 3.5 billion yuan, up 24% year on year; net profit attributable to parent company of 200 million yuan, up 121% year on year, corresponding to profit of 0.29 yuan per share, exceeding our expectations. During the reporting period, the operating profit margin increased 3.7 percentage points year-on-year, benefiting from the recovery in the viscosity industry and the steady increase in profits in the health industry. Development trend The supply and demand structure of viscose staple fiber has improved, leading to an improvement in the company's gross margin. The adhesive industry has been structurally discontinued since 2015 due to environmental protection reasons. The supply and demand structure has improved markedly, and the price bottom has picked up. New production capacity will be limited in the future. The new production capacity will only be 3% in 16-17, and the annual growth rate of downstream demand has stabilized at around 5%. Currently, the average market price is about 16,400 yuan/ton, up 30% from the beginning of the year. Furthermore, prices of major raw materials and energy have declined, and gross profit per ton has increased, leading to a continuous improvement in gross margin. The company's viscose staple fiber equity production capacity is about 230,000 tons, leading the industry, and has high performance flexibility. Transformed into the big health industry, two-wheel drive, and profits grew steadily. In 2015, the company acquired Aoyang Health Investment. It owns 4 general hospitals, centered around Aoyang Hospital, linked with 3 other branches. Currently, the total number of hospital beds is 2,200. In the future, through the chain of rehabilitation hospitals, the company will hopefully accelerate replication from other locations. Profit forecast We raised our 2016 earnings per share forecast by 10.1% from $0.31 to $0.34, maintaining our 2017 profit forecast of $0.64. Valuation and recommendations Currently, the company's stock price corresponds to 16/17 33/18x P/E. We maintain our recommended rating and target price of RMB 15.00, which is 34.17% higher than the current stock price. The target price corresponds to the 2017 24x P/E. Demand for risk adhesives fell short of expectations; big health business development fell short of expectations; and the valuation center moved downward.