Cause of the report: On November 6, 2009, we conducted research on Jining Lukang Pharmaceutical and had in-depth exchanges with company executives on the company's basic situation. Investment highlights: Company conditions. The company is one of the traditional four major antibiotic production bases in mainland China, and is currently the only domestic enterprise with a complete production chain of the three major hemizygotic antibodies. The leading products, penicillin-like semi-synthetic drugs and cephalosporins, have their own systems, from intermediates to APIs and formulations, and have obvious competitive advantages in scale. Currently, the veterinary drug business is growing rapidly and has become an important part of the company's product composition. The company's products are also exported to more than 40 countries and regions, and there are good prospects for future development. Both operating profit and net profit declined sharply in the first three quarters of 09. In the first three quarters of 2009, the company achieved revenue of 1,431 billion yuan, a year-on-year increase of 8.04%, an operating profit of 16.62 million yuan, a year-on-year decrease of 42.83%, and a net profit of 17.28 million yuan, a year-on-year decrease of 38.72%. The basic raw material for the company's products is food. Affected by agricultural product prices, the gross margin of the company's products fell 2.81 percentage points to 13.84%. At the same time, the commencement of construction in the company's new production area, and the number of new construction projects increased by 42.25% over the same period last year. It is expected that the new projects will be put into operation in July next year; the taxes and fees payable by the company during the same period increased by 179.34% compared to the beginning of the period, leading to a sharp decline in the company's overall net profit. Internal integration is complete, and the four focus areas will be development goals. The company began adjusting its products and structure in 2008, and after positioning the company, it was divided into four main segments, namely the API sector, the pharmaceutical sector, the veterinary medicine sector, and the environmental protection sector. Formulation growth remained the most stable after integration, reaching a monthly growth rate of 10-20%. At the same time, winter is the peak season for pharmaceutical sales, so it is expected to grow sharply in the fourth quarter, reaching 40%. Investment advice: The EPS for 2009-2011 is expected to be 0.036 yuan, 0.071 yuan, and 0.152 yuan respectively; the corresponding PE is 183.72 times, 94.10 times, and 43.98 times, respectively, giving a “neutral” investment rating.