2016 results miss expectation

In 2016, revenue was Rmb1.75bn, up 13.4% YoY; net profitattributable to shareholders was Rmb277mn, up 92% YoY, orRmb0.34 per share, missing preannouncement. Recurring netprofit dropped 57.7% YoY to Rmb59.90mn. In 4Q16, revenuewas Rmb440mn, up 2.5% YoY and 16.7% QoQ, while net profitwas Rmb154mn.

Trends to watch

M&A to drive fast growth in pharmaceutical business.

Downstream clients’ destocking to end and pesticide &chemical business likely to improve.

Entry into new energy business with establishment ofJV.

Earnings forecast

Considering expectation of equity disposal in FushinePharmaceutical, we raise 2017e EPS forecast by 3% toRmb0.37, and introduce 2018e forecast at Rmb0.43.

Valuation and recommendation

The stock is trading at 42x/36x 2017/18e P/E. Due to fallingaverage valuation, we cut TP by 9.76% to Rmb18.5（50x/43x 2017/18e P/E）， implying 20.2% upside room.Maintain BUY.

Risks

Decline in traditional business; new project misses expectation.