Summary:

Lukang Biochemistry is a company based on the veterinary drug industry, extending to additives and bio-pesticides. From the perspective of the company's development cycle, this year is the last year of the rising cycle and should be a stable year. The results forecast for the third quarter shows that the company's net profit fell 8.33%, 12.1% compared with the same period last year, which has narrowed compared with the second quarter, but the fourth quarter is the traditional peak season, and the whole year is expected to increase slightly from the same period last year.

The veterinary drug industry takes the traditional animal husbandry as the service object. from the overall development in recent years, the industry as a whole has followed the animal husbandry to large-scale, and the number of enterprises above the scale of the veterinary drug industry in China has reached 457. In the process of large-scale animal husbandry, the veterinary drug industry is also gradually concentrated.

Judging from the company's semi-annual earnings, foreign trade income has accounted for more than 70% of the profits in the business, and is expected to account for most of the company's revenue this year. On the one hand, the reason lies in the lukewarm domestic market this year, on the other hand, due to the recovery of cattle farming abroad this year.

The other two segments of the company focus on food preservative and feed addition, although the overall income is not high, but the drive of high gross margin will gradually promote the development of the market, and future revenue will be expected.

Profit forecast: we forecast that the company's EPS from 2017 to 2019 will be 1.14,1.61,2.17 yuan respectively, giving the company an "overweight" rating.

Risk tips: 1) the risk of market change; 2) regulatory risk; 3) the risk of industrial policy change.