Cutting mid-term ROIC by 5pptWe believe quality-consistency evaluations will affect the progress of Er-Kang's starchcapsules in capturing share from traditional gelatin capsules. The auxiliary materials andtechnologies used to make preparations, including the type of capsule used, can impactwhether a pharmaceutical preparation is able to pass quality-consistency evaluations. With this in mind, we think drug makers may avoid switching to this new product,instead preferring to conservatively stick with the gelatin capsules that have been inwidespread use for over 50 years. We therefore estimate that replacement of gelatincapsules with Er-Kang's starch capsules may lose momentum in China, which leads usto cut our mid-term ROIC by 5ppt and lower our PT to Rmb17.84. Controlling shareholder to trim stake by up to 9.66% of outstanding sharesOn 7 December, the company announced that Mr. Fangwen Shuai (its controllingshareholder and effective controller) and Ms. Zaiyun Cao, who acts in concert with Mr. Shuai, plan to trim their stake in the company by no more than 9.66% of totaloutstanding shares, bringing their combined stake to 36.83%, with the action to becompleted within six months of 12 December. We remain optimistic on long-term potential of starch capsulesEr-kang's starch capsule series posted revenue of Rmb683m in H116, up 161.09%YoY. We are positive on the use of starch capsules in the pharmaceutical and foodsectors, given starch capsules' advantages over gelatin capsules (better safety andstability) and our view that replacement of gelatin capsules with starch capsules is along-term trend. Moreover, Er-Kang is the world's only company to have successfullycommercialised starch capsules, and we expect the company will leverage its starchcapsules to gradually expand into the downstream capsule drug preparation market. Valuation: Lowering PT to Rmb17.84; maintain Buy ratingWe are lowering our DCF-derived PT by 9.1% to Rmb17.84 (WACC 7.9%), implying35x 2017E PE, while our Buy rating remains unchanged.

New products likely to be main driver of revenue growthNhwa's stable overall revenue growth is mainly driven by new products, as older onesare entering a mature period with limited growth. Among Nhwa's new products, webelieve duloxetine (psychotropic), aripiprazole tablets (psychotropic), propofol(anaesthetic), remifentanil (anaesthetic) and dexmedetomidine (anaesthetic) have bettergrowth potential. Duloxetine/aripiprazole tablets have global peak sales potential ofUS$4bn/7bn, we estimate, in addition to a favourable competitive landscape in China. Rich R&D pipelineNhwa has more than 50 R&D projects, covering a full spectrum of central nervoussystem drugs. Also, it has a well-established R&D platform for original psychotropic andanalgesic drugs. It received regulatory approval for clinical trials on five of its productsin H116. New products in the pipeline may be able to support Nhwa's sustainabledevelopment. Increased spending on salesAmong Nhwa's main products, new ones are replacing older ones. A ramp-up in newproduct sales could be the key to Nhwa's growth, which requires increased spendingon sales. Nhwa's selling expense ratio rose c4ppts YoY in Q316. Valuation: Cutting price target to Rmb26.09; maintain BuyWe are raising our 2016-18E selling expense ratio 0.9/0.9/1.1ppts because we expectNhwa to increase spending on sales. As a result, our 2016-18E EPS fall 9%/10%/10%to Rmb0.54/0.69/0.90. Our new DCF-based price target of Rmb26.09 assumes WACCof 6.6% (down from 7.2%) and medium-term ROIC of 19% (down from 21% toreflect the tough operating environment facing drug manufacturers). We maintain ourBuy rating, as we believe Nhwa's business mix is improving and growth couldaccelerate on the ramp-up in new product sales.

Product line expanding. Huahai has received ANDA approvals for 3 generics and clinical trial approvals for 5drugs since August. New ANDA and clinical trial approvals are laying a foundation forthe company's long-term development at home and abroad. We believe the technicaladvantages Huahai has accumulated over many years in generic drug productionprocesses, quality control, etc., along with substantial R&D investment, will helpsupport ongoing product line updates, driving its long-term development. Fast growth overseas. Generic drug exports are one of the company's core competencies. Huahai has receivedover 20 ANDA approvals, including 6 YTD in 2016. It is gradually moving towards highdifficulty,high-value-added generics and high-end preparations. Given its global costadvantages and future product launches, its overseas preparation business is likely tomaintain rapid growth. Giving higher priority to domestic preparation business. China's rollout of policies covering areas such as drug evaluations and generic drugconformity assessments are positive for drug-makers such as Huahai, which have strongproduction processes and high-quality generic drugs. In response to policy trends, thecompany has ramped up investment in its domestic preparation business. Although thiswill result in higher marketing and R&D expenses in the short term, the advantages ofthe company's high-quality preparations should become increasingly apparent asprovince-level tendering policies fall into place, resulting in robust growth for itsdomestic business. Valuation: Raising PT to Rmb31.19; maintain Buy. The company has ratcheted up R&D spending to support long-term growth. Althoughwe expect that to negatively impact mid-term ROIC, new products are likely to drivegrowth over the long term. As a result, despite cutting our mid-term ROIC estimate to18% from 20%, we are raising our terminal growth assumption to 5% from 4%. Ournew DCF-derived PT of Rmb31.19 assumes 7.3% WACC and implies 53x/41x 2016/17EPE. We maintain our Buy rating.

Revenue growth fell in Q3 Salubris posted Q1-Q316 revenue of Rmb2.83bn, up 10.19% YoY. The growth ratewas down 4ppts sequentially. Revenue rose 3% YoY in Q3, confirming a trend ofslowing revenue growth. We believe the company is at an important stage in itsproduct mix adjustment, with big sales and stable growth for its core Talcom product. IfTalcom re-enters the Guangdong market, it would add incremental volume. Expectations for the company's revenue growth are built more on a ramp-up in secondlinedrug sales. Gross margin expanded slightly YoY in Q1-Q3; expenses under control Q1-Q316 gross margin edged up 0.5ppt YoY to 74.35%. Expenses were kept undercontrol, with the expense ratio down 0.4ppt YoY. Meanwhile, net profit jumped12.3% YoY, a slight pick-up from Q1-Q2, due to increased government subsidies. Netoperating cash flow increased 66.88% YoY. Stepping up acquisitions to build multi-product platform The company has stepped up acquisitions, as evidenced by the recent week'sannouncements of investments in Keyidun Biomedical, Salubris Biotherapeutics, Inc.,Zhongke Health and Yalun Biotech (Beijing). Those investments were mainly made toacquire/raise new capital for products under R&D and bolster the company's "drug,equipment and overall solution" presence, laying the foundation for long-term growth. Valuation: Price target of Rmb40.66; maintain Buy Our DCF-based price target of Rmb40.66 (WACC 6.8%) implies 29/24x 2016/17E PE. We maintain our Buy rating.

Stable top-line growth 9M16 sales were Rmb2.26bn, up 11.72% YoY, decelerating 1ppt from H1. Thisincluded sales of Rmb750m in Q3, up 9.84% YoY. Net profit grew 17.8% YoY in9M16. The company's core business is posting steady revenue growth, with newproducts likely to be the key driver in future. Of the company's new products launchedin the last several years, we think the following have high growth potential: duloxetineand aripiprazole tablets (psychotropic drugs) and propofol/remifentanil anddexmedetomidine (anaesthetics). Duloxetine is currently performing well in tenders;global sales of this product could peak at US$4bn, and it faces a benign competitivelandscape in China, with just three manufacturers (Lilly, Zhongxi and Nhwa). Globalsales of aripiprazole tablets could peak at US$7bn, and this product is currently sold byfour companies in China (Otsuka, Kanghong, Zhongxi and Nhwa). GPM improved on higher weighting of drug manufacturing in total revenue Gross profit margin (GPM) increased to 45.01% in 9M16, up nearly 4ppt from thesame time last year. The increase in GPM was mainly due to revenue mix changes, withthe higher-margin drug manufacturing business accounting for a bigger share of totalrevenue, and brisk growth in preparations. Overall expense ratio rose markedly The overall expense ratio reached 30.23% in 9M16, up nearly 3ppt from the same timelast year. This was chiefly driven by a higher selling expense ratio (+3.9ppt YoY). Theadministrative expense ratio stayed broadly flat, while the financial expense ratiodeclined nearly 0.6ppt YoY due to a big dip in financial expenses resulting from theparent company's bank loan repayments and wealth-management product income. Valuation: Maintain Rmb28.67 price target, Buy rating 9M16 net profit was Rmb254m, up 17.8% YoY, with net profit growth outpacingrevenue. We expect net profit to grow 15-30% YoY in full-year 2016. Our DCF-basedprice target is Rmb28.67. We believe the company's business mix is continuing toimprove, and although its major products are negatively affected by tender price cuts,the impact appears to be limited. Furthermore, we see high growth potential for certainpsychotropic and anaesthetic products launched in the past several years. We maintainour Buy rating.

Q1-Q316 revenue/net profit up 26.62%/32.17% YoY Q1-Q316 revenue was Rmb1.406bn (+26.62% YoY), net profit was Rmb607m(+32.17% YoY) and EPS were Rmb0.65. Revenue rose 21.20% YoY to Rmb550m inQ3 and net profit jumped 31.72% YoY to Rmb197m. The company expects 2016 netprofit to grow 25-35% YoY, largely in line with our expectation. Strong fundamentals for blood product segment The blood product segment is the company's main growth driver. With the approval ofnew plasma collection stations, coupled with the exploitation of the potential of oldstations, the company’s plasma collection volume could surpass 1,000 tonnes in 2016. Furthermore, rising blood product prices could further raise earnings. Currently, theprices of prothrombin complex concentrates, coagulation factors and humanimmunoglobulins for intravenous injection are up 36-50%, c15% and c15%,respectively, compared with early this year. In addition, the operation of a newproduction line for freeze-dried products will add momentum to the company's bloodproduct business development. Gross margin up slightly; expenses under control Q1-Q316 gross margin rose a slight 1ppt YoY, to 61.5%, due to higher blood productprices. Expenses were kept under control, with selling/administrative expense ratiosdown 0.2/1.5ppt YoY. Valuation: Price target of Rmb46.54; maintain Buy Our price target of Rmb46.54 is based on DCF. As a leading player in the blood productsector, with broad regional coverage, a high share of new plasma collection stations,big potential for plasma collection volume growth and a rich product line-up, the wellmanagedcompany is better placed to benefit from the strong fundamentals of theblood product sector, in our view. Additionally, the company's vaccine business is still atthe bottom and its monoclonal antibody business still requires investment, withpotential to overshoot expectations. We maintain our Buy rating.

Stable growth ahead for Talcom, which is likely to re-enter Guangdong. Salubris' Talcom and Sanofi's Plavix are about to start competing in the same biddingtier (tier 3) within Guangdong province as a result of new interim rules that take effectin January. Therefore, if Salubris is the only successful bidder in this tier, it will shareGuangdong's nearly Rmb800m clopidogrel market with just one rival, Lepu Medical. Talcom's stable growth is also supported by increasing percutaneous coronaryinterventions (PCI) and applications in neurology and preventive treatment. Given theuncertain timing of Talcom's return to Guangdong, however, we are cutting our2016/17/18E EPS and terminal ROIC. Second-line drugs have significant potential. Of the company's second-line drugs, Taijianing (bivalirudin), a class 3.1 drug, is quicklyramping up, while Xinlitan (allisartan isoproxil), a class 1.1 hypertension drug, is now inthe tendering & promotion stage and undergoing preparations to enter the nationalmedical insurance reimbursement list. Both products are likely to become new profitgrowth drivers. Increased R&D investment and stronger pipeline. Salubris has developed innovative short-, mid- and long-term product pipelines throughacquisitions and internal R&D. On the one hand, multiple new biopharmaceutical drugsare on course to launch in the next two-to-three years. In H216, Salubris plans to applyfor production approval for recombinant human parathyroid hormone 1-34 (rhPTH1-34) lyophilized powder, and it has completed phase II trial enrolment for recombinanthuman keratinocyte growth factor (rhKGF). Meanwhile, medical device products underR&D include a left atrial appendage closure device and delayed vena cava filter. Thesenew products are poised to underpin the company's growth over the long term. Valuation: Trimming price target to Rmb40.66; maintain Buy rating. Considering the uncertain timing of Talcom's return to Guangdong, we are loweringour 2016/17/18E EPS by 2% in each year to Rmb1.42/1.71/2.04, and lowering terminalROIC to 8.2% from 9%. Our Rmb40.66 price target is based on DCF (WACC 6.8%)and implies 29x/24x 2016/17E PE. We maintain our Buy rating.

Preparations were the main growth driver; domestic sales grew rapidly H116 revenue was Rmb1.98bn, up 21.23% YoY, and net profit was Rmb260m, up10% YoY. Q216 revenue rose 12% YoY. By business type, API revenue rose 7% andpreparation sales rose 41% YoY. By region, faced with unfavourable factors such ashealthcare insurance reimbursement control, the domestic business strengthened itsmarketing channels and sales network, resulting in a 41% YoY increase in domesticsales. Overseas sales revenue grew at a slower rate of 15% YoY. The slower growthwas due to slower API revenue growth and slower growth in overseas preparationrevenue. In H116, Huahai received three ANDA approvals, newly filed for two ANDAapprovals, and submitted one US product to the Centre for Drug Evaluation (CDE) fordomestic evaluation. API margin improved while preparation margin narrowed In H116, Huahai's gross margin expanded by 1.42ppts YoY. API gross margin rose4ppts (pril products up 4ppts and sartan products up 2ppts). Affected by factors suchas China's healthcare insurance reimbursement control, preparation gross marginnarrowed 4ppts. Higher marketing/R&D outlays drove sharp increase in expenses in Q2 In H116, with Huahai stepping up efforts to promote its preparation products, sellingexpenses rose Rmb70m (+43% YoY). An increase in expenses such as R&D outlays (up58% YoY to Rmb160m) pushed administrative expenses up by Rmb130m (+49% YoY). Q216 selling expense ratio rose 4ppts QoQ and administrative expense ratio rose 1pptQoQ. Valuation: Maintain Rmb28.37 price target, Buy rating Our DCF-based PT of Rmb28.37 assumes a 7.1% WACC. Though Huahai's net profitgrowth missed expectations in H116 due to substantially higher expenses, we see itsstrategic guidelines driving rapid growth in the domestic business. We expect revenueto maintain rapid growth, with the company continuously receiving ANDA approvalsand submitting US products for domestic evaluation; and in our view, substantialincreases in selling expenses and R&D outlays are laying a foundation for the future anddo not change the company's long-term outlook. Therefore, we maintain our Buyrating.

Steady growth in core operations H116 revenue rose 12.67% YoY to Rmb1.5bn and net profit increased 17.48% YoY toRmb170m. EPS came in at Rmb0.27. Core operations posted steady growth. Pharmamanufacturing revenue was Rmb823m (+17.54% YoY), including Rmb416m fromanaesthetic drugs (+33% YoY), Rmb292m from psychotropic drugs (+15.32% YoY),Rmb37.42m from neurological drugs (+14.41% YoY), Rmb43.16m from otherformulations (+39.76% YoY) and Rmb33.97m from APIs (-48% YoY, mainly due to asharp decline in API exports). Pharma distribution revenue grew 7.43% YoY toRmb681m. Higher overall GM; slightly lower manufacturing GM; higher distribution GM Overall gross margin (GM) expanded 1.27ppt in H1. The pharma manufacturingsegment posted a 1.37ppt decline in GM as tender prices for Nhwa's main productsfell. By product, GM on anaesthetic and psychotropic drugs dropped 2ppt and 5.31ppt,respectively. The pharma distribution business saw a 0.96ppt rise in GM. Internet-mediated healthcare still at initial stage; expense ratios stable The internet-mediated healthcare business (Beijing Haoxinqing, Beijing Yihua) stillrequires investment, with no revenue generated yet. Nhwa's selling/administrative/financial expense ratios were largely stable. Valuation: Rmb37.27 price target; maintain Buy rating Our DCF-based price target of Rmb37.27 assumes WACC of 7.2%. In our view, thedecline in tender prices for Nhwa's main products was smaller than the industryaverage, and its anaesthetic and psychotropic drugs could maintain steady growthowing to high administrative barriers. In addition, the pharma distribution segmentenjoys a strong competitive edge in the region. We maintain our Buy rating because weare bullish on the company’s sustainable long-term growth and we believe the impactof lower tender prices on growth in the company's pharma manufacturing businessand the overall sector is overly priced in.

Core business remained steady; revenue fell 33.95% on subsidiary exclusion. H116 operating revenue decreased 33.95% to Rmb871m, mainly as Jiangxi JointownPharmaceutical, a subsidiary sold at end-2015, was no longer included in Jiangzhong'sfinancial statements. Excluding that, Jiangzhong's core business increased steadily, asdrug manufacturing revenue rose 0.48% (including Rmb757m of OTC drug revenue,up 4.93% YoY). Healthcare product revenue decreased 22.24% YoY to Rmb110m andthe liquor segment posted revenue of Rmb1.48m. Gross margin improved moderately after Jiangxi Jointown was sold. H116 gross margin increased 23ppts, mainly because the low-margin drug distributionbusiness was sold. Drug manufacturing gross margin rose 0.84ppt, mainly boosted byOTC drug gross margin, which rose 1.98 ppts in H116. Gross margin of the healthcareproduct segment decreased 11.46ppts. Expenses decreased; net profit rose substantially. H116 expenses declined, with selling/administrative/financial expenses down 15%/8%/96% YoY, as Jiangxi Jointown was no longer consolidated in Jiangzhong's financialstatements and Jiangzhong changed its sales strategy, marketing its products with anon-advertising-based sales model that reduced Rmb40m in advertising expenses inH116. H116 financial expenses fell Rmb15.08m YoY due to a corporate bondredemption in 2015. Net profit increased 41% YoY to Rmb197m in H116, with EPS atRmb0.66, due to lower expenses. Valuation: Price target of Rmb44.56; maintain Buy. The company is exploring a non-advertising-based sales model to adapt to a changingenvironment, which we think is more effective and likely to save a large amount ofexpenses. In addition, we view prices of Jiangzhong's OTC products have potential andit is likely to lift OTC drug prices steadily on brand advantages. Our 2016-18E EPS areRmb1.43/1.85/2.23. We derive our price target of Rmb44.56 using DCF-basedmethodology (6.7% WACC) and maintain our Buy rating.

投资摘要 受益于维生素价格周期上涨,营养品业务迎来好年景。 预计短期内维生素E价格在调整后将会稳中小幅上升为主,但上升空间有限。 维生素A的价格正式进入新一轮的上涨周期中,截止到3月2日,维生素A的价格已经达到215元/kg,价格超出前几年的高点。 维生素D3的价格已经下降到近年低点。2月4日,印度Fermenta公司宣布自3月1日起提高VD3产品价格20%,或将会成为VD3上涨的契机。 新材料成为新增长引擎 一期5000吨/年项目已经投产,目前基本达到设计产能。未来公司将启动二期25000吨PPS项目,建设期1年。按照PPS出厂价6万元/吨,未来30000吨项目可贡献收入18亿元,预计毛利率在40%左右。 蛋氨酸潜在增长点 蛋氨酸项目是公司未来2-3年重点项目之一,总规划10万吨,一期建设5万吨。2016年6月一期5万吨蛋氨酸能够建成。 盈利预测 我们预计公司2015-2016年的营业收入分别为38、51、56亿元,同比增长-7.8%、32.9%、10.26%;2015-2016年的归属净利润分别为4.0、9.2、10.75亿元,分别同比增长-50.21%、129%、16.63%。对应每股收益分别为0.37/0.85/0.98元。

投资摘要 估值与投资建议 公司机制灵活,管理层能力强,执行到位,是一家充满活力的民营医药商业公司。公司未来的发展空间在于以下几个方面: 1、省内医药市场的进一步扩容和公司市场占有率的提升; 2、公司在医疗器械配送领域的迅速扩张; 3、医疗创新领域的发展,尤其是公司PBM系统。公司的PBM系统以医院为入口,业务模式适宜中国发展特点,2016年将取得突破。 预测公司2015-2017年实现销售收入分别为97.8亿、143亿、185亿元,归属于母公司净利润分别为2.4亿、4.8亿、7.1亿元。在不考虑增发摊薄影响下,分别实现每股收益0.44、0.87、1.28元。 核心假设或逻辑 盈利预测主要假设: 1、医药板块增速稳定,2016年收益山东省招标,增速较高 2、医疗器械板块进入快速扩张期 3、PBM业务2016年开始贡献利润

投资摘要 估值与投资建议 公司收入增长稳定,制剂业务发展良好,2014年由于制剂厂房认证拖后,降价等影响利润负增长,2015年不利因素依然存在,而之前市场所期待的大健康业务停止,电商业务进展依然缓慢,都降低了市场预期,主营业务方面,2015年度医药商业受到二次议价影响,批发业务预计能够保平,医药零售增长平稳,制剂业务也略有增长。 我们给予“谨慎增持”建议。 核心假设或逻辑 医药工业:医药工业增长主要来自于制剂,原料药部分2014继续负增长,之后预计略有回升后保持稳定;制剂由于2014年受制于产能影响,增长平稳,2015年后收益于产能扩张以及新产品等因素增长加快。 医药商业:医药商业部分增长略高于行业平均水平。 预测2015年-2017年公司的销售收入为21.8亿、23.5亿和26.1亿元,同比增长分别为6%、8%、11%。净利润分别为4233万元、4785万元和5981万元;净利润同比增长分别为:8.32%、13.04%、25%。EPS分别为:0.13、0.14、0.18元。 核心假设或逻辑的主要风险 1、主打产品销售低于预期,产品推广不力 2、原料药价格下跌高于预期

估值与投资建议. 公司在收购澳洋健投后,主营业务全面转型,由单一的粘胶短纤业务转变为粘胶短纤和医疗健康双主业的模式,而且医疗健康产业将是未来的主要发展方向。 目前,公司的粘胶短纤业务在亏损状态,粘胶短纤行业基本已经到达底部,近半个月粘胶短纤价格有反弹迹象,我们认为粘胶短纤价格继续下探的可能性较小。 公司的医疗健康产业是未来发展的主力,澳洋健投已经形成了以医疗服务为基础、医药流通为延伸,致力于提供多元化优质健康服务的产业布局。澳洋医院已经步入正轨,随着二期的投入,进入新的发展阶段。 预测公司2015-2017 年归属于母公司净利润分别为3789 万元、7009 万元、7950 万元,按增发后总股本7.12 亿股,对应EPS 分别为0.053 元、0.098 元、0.112 元。 核心假设或逻辑. 盈利预测主要假设:1、医疗健康产业2015 年并表. 2、粘胶短纤价格稳住,规模不扩大.

估值与投资建议. 公司的主要看点在以下几个方面: 1、 在政策配合下,公司的口腔医疗连锁获得有利发展良机,在中心医院+分院的模式下,未来几年进入快速扩展期,尤其是新杭口的正式运营会带来较大的增长。儿童口腔业务三叶医院和隐形正畸隐秀带来新的增长点. 2、 切入辅助生殖领域为公司打开新的成长空间。 预测公司2014-2016 年归属于母公司净利润分别为1.11 亿元、1.64 亿元、2.10 亿元,EPS 分别为0.69、1.02、1.31 元,净利润同比增长分别为:10.62%、48.33%、28.04%。 我们看好公司医疗连锁业务的发展,2014 年后将迎来新的发展高峰,但是鉴于目前较高的估值水平,我们给予“谨慎增持”的评级。 核心假设或逻辑. 根据分析,对销售收入做如下假设: 1、已有存量医院按照平稳增长. 2、每年新建5-6 家分院,1 家中心医院。 3、辅助生殖医疗2015 年能够顺利落地。 核心假设或逻辑的主要风险. 1、扩张速度低于预期. 2、新业务辅助医疗生殖业务发展低于预期.