Event: On April 25, Fuan Pharmaceutical announced that in 2015, it achieved revenue of 708 million yuan, a year-on-year increase of 57.86%, net profit of 64.894 million yuan, a year-on-year increase of 41.99%, corresponding to EPS of 0.24 yuan; in the first quarter of 2016, it achieved revenue of 212 million yuan, a year-on-year increase of 75.55%, net profit of 305.428 million yuan, a year-on-year increase of 234%, EPS of 0.11 yuan, in line with expectations. Comment: The increase in performance came from Ningbo Tianheng's merger. In 2015, Ningbo Tianheng achieved revenue of 332 million yuan, net profit of 42.92 million yuan, net profit of 42.02 million yuan, and net profit of 42.03 million yuan after deducting non-return to the mother, fulfilling its performance promise. Excluding Tianheng's performance contribution, the company's original antibiotic APIs and formulation business declined sharply year over year. In an industry environment where restricted resistance policies became stricter and tenders were lagging behind, it was difficult for antibiotic varieties such as aztrunan to maintain growth after experiencing a brief recovery in the first half of '14. We believe that market demand for varieties such as aztreonam, sulfampicillin sodium, nimergoline, and hydrocortisone is rigid. Judging from the current order situation, there is a bottom reversal of expectations. The revenue structure has been optimized, and the share of formulations has increased. Ningbo Tianheng specializes in anti-tumor and respiratory drugs such as toremifene citrate tablets. Most of them are medical insurance varieties and exclusive/separately priced varieties. Formulation revenue accounts for relatively high drug revenue, and gross margin is close to 80%. After Tianheng merged, the company's revenue structure was optimized in 2015, the share of pharmaceutical revenue increased to 59%, gross margin increased sharply to 52%, and the overall gross margin level increased significantly. There is a merger factor in the sharp increase in the first quarter report; however, Chu is about to join. Ningbo Tianheng began a merger in May last year, and merger factors contributed to high performance growth in the first quarter of '16. At the same time, the acquisition of Chu Pharmaceutical has been approved by the Securities Regulatory Commission and is still awaiting formal approval. It is expected that the merger will begin in the second quarter and will bring Fuan a net profit of 1-120 million yuan in 2016, greatly increasing its performance. In 2015, Zhichu Pharmaceutical accounted for 81% of its revenue from gentamicin sulfate APIs and 10% for injectable lipoic acid, but the growth was relatively rapid. It is expected to rise to 30% within three years, which is the main driving force for Zichu's performance growth. Its biofermentation technology is leading in China, which can effectively supplement existing technical shortcomings in chemical synthesis and raise the level of profitability. Diversify and transform and participate in the establishment of private banks. The mergers and acquisitions of the past two years revolved around the existing main business, guaranteeing performance growth over the next three years. The company is still on the path of transformation, and the new extension layout is worth looking forward to. Recently, it plans to participate in the investment to establish a private bank, Chongqing Fumin Bank, with a registered capital of 3 billion yuan. The main sponsor is Hanhua Financial Holdings Co., Ltd., and Fuan plans to invest no more than 480 million yuan, or less than 16%. Getting involved in financial business is conducive to increasing future return on capital, strengthening strategic cooperation with financial institutions, expanding business areas, and enhancing overall competitiveness. Maintain a “Recommended” rating. Let's not consider Chu Pharmaceutical's merger for now. The 2016-2018 EPS is expected to be 0.33 yuan, 0.41 yuan, and 0.46 yuan, and the price-earnings ratio corresponding to the current stock price of 19.11 yuan is 58 times, 47 times, and 41 times, respectively. After the additional issuance is completed, the company's total share capital will increase from 282 million shares to 398 million shares. After dilution, the 16-year EPS is 0.48 yuan, corresponding to a price-earnings ratio of 40 times. Considering the increase in performance and transformation expectations brought about by the merger, the “recommended” rating will be maintained. Risk warning: 1. Bidding falls short of expectations; 2. New drug approval risk; 3. M&A risk.