The pharmaceutical business sector is rapidly increasing in concentration driven by policy. The implementation of the “two-vote system” in 2017 will enable regional leaders to have a stronger momentum for mergers and acquisitions and seize a larger share in market turnover. Haiwang Biotech has seized the opportunity of industry integration to actively expand its horizons and quickly occupy the market through mergers and acquisitions in Shandong, Henan, Anhui, Heilongjiang and other regions, and is expected to become a regional distribution leader. At the same time, as a leading enterprise in centralized distribution of Sunshine, the company's scale advantage has gradually become apparent, and a rapid growth trend in performance has been established. It is expected to expand rapidly within the next three years. Maintain the target price of $9.24 and maintain the buy rating. Key points supporting the rating As one of the earliest companies in the industry to enter Sunshine Centralized Distribution, market development costs declined after the sales scale was increased, the company's management and control capabilities were enhanced, and financial expenses were reduced after the increase in sales last year. The company has already entered a period of rapid growth in performance. Non-net profit deducted in 2016 increased 198% year on year; the performance forecast for the first half of 2017 achieved net profit of 0.2 to 0.25 billion yuan, an increase of 99.73%-149.66% year on year, and is expected to maintain rapid growth throughout the year. The industry faces a historic opportunity for rapid consolidation. The formal promotion of the “two-ticket system” will drive the advent of a wave of pharmaceutical commercial mergers and acquisitions, and industry concentration will increase rapidly. The pace of mergers and acquisitions of the company is accelerating, and it is expected that the second half of the year will significantly increase the company's revenue and profits, and achieve leapfrog growth in performance. Methods such as book funds, corporate bonds, fiduciary loans, and ABS can provide sufficient ammunition for the acquisition. The GPO model is a future development trend in the field of pharmaceutical distribution. The promotion of centralized procurement by Quan Pharmaceutical Network, a subsidiary of the Group, in the Shenzhen region will also positively boost the company's business, and other cities in Guangdong Province will also start GPO pilot projects one after another, which will promote the development of the company's centralized distribution business. The main risks facing ratings are the risk of mergers and acquisitions falling short of expectations; the risk of increased market competition; and the risk of related policy changes. The valuation and distribution industry is driven by policies to accelerate concentration. The company's GPO business is growing steadily, and active mergers and acquisitions accelerate performance growth. The net profit for 2017-2019 is expected to be 0.752, 0.993, and 1.17 billion yuan, respectively, with corresponding earnings per share of 0.29, 0.37, and 0.44 yuan, respectively. Maintain the target price of 9.24 yuan, corresponding to a price-earnings ratio of 32 times in 17 years, and maintain the purchase rating.