Key investment events: The company released its 2016 mid-year report. The company achieved revenue of 1.18 billion yuan in the first half of the year, an increase of 13.33% over the previous year; net profit of 26.11 million yuan, an increase of 255% over the previous year, with outstanding profitability. It mainly benefited from good tenders in 2015, sales volume in the first half of the year was fully guaranteed, sales of pharmaceutical products continued to increase, and prices of major APIs such as nystatin led to an increase in the overall profit of the pharmaceutical industry. Conform to the development policy of traditional Chinese medicine and expand the traditional Chinese medicine industry chain. 1) Improve the upstream of the Chinese medicine industry chain. Five new cultivation bases for Chinese herbal medicine were built in the first half of the year. Currently, the company has a total of 15 bases, and the company has further improved the quality control of raw materials of traditional Chinese medicine; 2) the newly established Chinese medicine tablet company completed GMP certification, and the production quality and capacity of Chinese medicine tablets have been steadily improved; 3) Strategic cooperation with the “century-old hospital” Shaoxing No. 2 Hospital enhances the company's brand value, promotes the cultivation of traditional Chinese medicine talents, and comprehensively enhances its core competitiveness in the traditional Chinese medicine industry. Optimizing pharmaceutical business models, diversifying and promoting development. 1) In the context of the “two-ticket system”, the company adjusted its business layout, gave full play to the advantages of the grass-roots distribution network, and expanded its share of wholesale business to hospitals, thereby increasing the company's gross profit level; 2) The company won the general distribution rights for Taiji Agastache Gas Liquid in Zhejiang Province to enrich the variety of agents and strengthen commercial capacity; 3) The pharmacy chain added 5 new stores in the first half of the year. Currently, the company added 5 new stores in the first half of the year, and its brand and regional value have been recognized by the industry. At the same time, it continues to expand traditional Chinese medicine health services and launch Zhenyuantang acupuncture and moxibustion treatment programs to increase customer stickiness; 4) Pharmacies actively connect prescriptions Outflow. In the first half of the year, DTC pharmacies were opened in three pharmacies, including Shanlutang, Zhenyuantang, and Shangyu Health Pharmacy, and retail sales of clinical varieties doubled compared to the previous year. Strengthen oneself and advance with mergers and acquisitions, and make up for shortcomings in transformation and upgrading. 1) The company invests in the Vietnam Business Industry Fund and co-funds with the government to invest in areas where Shaoxing is vigorously developing, such as pharmaceuticals, life, and health, advanced equipment manufacturing, etc.; 2) The company actively investigates and contacts related enterprises to explore mergers and acquisitions opportunities to optimize its own business development; 3) The competitiveness of the pharmaceutical industry has improved; 2 new invention patents were added in the first half of the year, a total of 21 new invention patents were added in the first half of the year, and production processes related to adenyl methionine were optimized; 4) Optimized distribution routes, improved service quality and logistics distribution capabilities, and product distribution capabilities throughout the province. Achieve better results. Profit forecasts and investment advice. The 2016-2018 EPS is expected to be 0.15 yuan, 0.21 yuan, and 0.27 yuan respectively (the original forecast was 0.15 yuan, 0.20 yuan, and 0.26 yuan; the reason for the increase was the outstanding performance of the interim report), and the corresponding price-earnings ratio was 94 times, 71 times, and 53 times, respectively, raised to the “” rating. Risk warning: New products, retail pharmacies are not profitable or meet expectations; price increases for APIs may not be sustainable.