The company's performance in the first quarter of 2010 increased significantly. Lukang Pharmaceutical's revenue for the first quarter of 2010 increased 19% year on year, achieving net profit of 47.27 million yuan, an increase of 855% year on year. The company's gross margin increased from 16.35% in 2009 to 20.96% in the first quarter of 2010, and net profit margin increased from 2.05% in 2009 to 8.25% in the first quarter of 2010, greatly increasing profitability. The sharp increase in performance is mainly driven by the antibiotic business. The main reason for the sharp increase in the company's performance is the sharp increase in its main products, penicillins and cephalosporins. The company's main products, 21 pharmaceutical products, including penicillin, streptomycin, amoxicillin, and cephalexin, have entered the “National Catalogue of Essential Drugs”, accounting for more than 70% of the company's pharmaceutical revenue. The sharp increase in the use of antibiotics in the primary care market is the main driving force. The restructuring of the company's API products has increased profitability. Currently, the company's main API products include 7-ACA, macromycin, and semisynthetic penicillins. In order to improve overall profitability, the company adjusted the product structure of antibiotic APIs, increased the sales scale of ultra-broad-spectrum penicillin APIs such as meloxicillin and aloxicillin, which have high gross margins, and stopped production of low-margin and unprofitable products. Good results have been achieved. Both gross margin and net profit margin have been greatly increased. It is worth paying attention to the strong growth of the entire antibiotic industry in the first quarter. The published quarterly reports of listed companies in the pharmaceutical industry show that both antibiotic APIs and pharmaceutical companies have shown strong growth. It is worth noting that the entire antibiotic industry grew sharply in the first quarter. As the most important essential drug in the primary care market, the sharp increase in antibiotic products shows strong growth in the low-end general chemical drug market, driven by the expansion of medical insurance in rural and urban areas. We expect this trend to continue this year. We recommend continuing to pay attention to antibiotic APIs and pharmaceutical-related companies Baiyunshan A, Health Yuan, Lizhu Group, and Harbin Pharmaceutical Co., Ltd. A rating of “Increased Holdings-A” was given, and the target price for 12 months was 10.5 yuan. It is expected that in 2010, driven by strong growth in antibiotic products, the company's sales revenue will increase by more than 19%, while gross margin will further increase. We expect the company to achieve EPS of 0.30 yuan and 0.43 yuan from 2010 to 2011. According to the PE valuation of the current market chemical and pharmaceutical industry, which is 35 times the average in 2010, the company's target price for the next 12 months is 10.5 yuan, giving it an “increase in holdings - A” rating.