Investment highlights: Lu Feng Co., Ltd. is a leading domestic aluminum foil company for household and medicinal use. The company's leading products are household and medicinal aluminum foil. Household aluminum foil is mainly used for export, and the domestic market share ranks second, while pharmaceutical aluminum foil has the highest market share in the country. The food and drug packaging market will develop rapidly in the future. In terms of food aluminum foil, we expect the compound average growth rate of the pharmaceutical aluminum foil packaging market will reach 25%-30% in the next ten years as aluminum foil replaces plastic wrap and plastic lunch boxes, and the beverage industry grows to demand for Tetra Pak packaging, with the potential increase in demand for food aluminum foil to reach 705,000 tons, or the compound average growth rate of aluminum foil packaging will reach 31%. The company's profit model guarantees a stable level of gross profit. The company's products target the daily consumer market, and the company's product pricing adopts the “average price of aluminum ingots+processing fee” model. Its profit mainly comes from the difference between processing fees and processing costs, so that the company's gross profit can be maintained at a relatively stable level. New production capacity is about to be released, and the company is entering a period of rapid growth. Currently, the company is under construction and is expected to start production in the next year or two, including 80,000 tons of aluminum foil and 100,000 tons of aluminum sheets and strips. We expect the company to produce 40,000, 84,000 and 134,000 tons of aluminum foil from 2010 to 2012, respectively, and 50,000, 75,000 and 95,000 tons of aluminum sheet and strip, respectively. Financial forecast: Net profit attributable to the parent company is expected to be 40.15 million yuan and 90.79 million yuan respectively in 2010 and 2011, up 25% and 126% year on year. Based on the share capital of 77.5 million shares after issuance, the earnings per share for 10 and 11 years were 0.52 yuan and 1.17 yuan, which is lower than the agreed market expectations. The reason is that the current consensus market expectations do not reflect the company's delayed production capacity release due to delays in equipment commissioning. Valuation and recommendations: First focus on giving prudent recommendation ratings. We expect PE to be 74.7/33.0 times in 2010/2011, which is higher than the average PE value of A-share comparable companies. Since the company is in a period of high growth, PEG was only 0.67 in 2011, which is lower than the average value of an A-share company of 0.75. The high growth rate makes it relatively attractive in the aluminum processing industry. Although recent market consolidation may put some pressure on stock prices, we are optimistic about the company's medium- to long-term growth opportunities. Risk: Production capacity under construction cannot be put into operation as scheduled.