First, the performance has increased substantially, but it is lower than market expectations. The company expects net profit to grow by 200-250% in 2010 compared with the same period last year. We estimate that the corresponding net profit is 1.13-132 million yuan and EPS is 0.19-0.23 yuan, which is lower than the market expectation.

Second, we should attach equal importance to the development of APIs and preparations, benefiting from the promotion of the essential drug system. The company has 21 preparations listed in the National essential drugs Catalog, accounting for more than 70% of preparation revenue. The release of demand for primary health care is the main driver of the substantial growth of antibiotic business. As an important antibiotic production base in China, the company will continue to benefit from the rapid development of primary health care institutions and the gradual implementation of the basic drug system, and the performance growth is expected to continue.

Third, the adjustment of product structure will give full play to its benefits. The company's main API products include 7-ACA, spectinomycin and semisynthetic penicillin. In the second half of 2009, the company's 7-ACA enzymatic pass-through process went through, which greatly reduced the cost of 7-ACA. The price of 7-ACA in 2010 ran for a long time above 850 yuan / kg, but it fell to the trough of 700yuan / kg at the end of July and the beginning of August, but soon returned to the price of 900yuan / kg. The company's leading product 7-ACA production and sales are booming. At the same time, the company optimizes the product structure of semi-synthetic antibiotic raw materials, limits the production of low gross margin products, and increases the proportion of sales of extended-spectrum penicillin such as mezlocillin and azlocillin, which is expected to increase year-on-year.

Investment advice: recommend (maintain). The adjusted profit forecast for the company from 2010 to 2012 is 0.2,0.28,0.39 yuan (originally 0.33,0.44 and 0.53 yuan), and the corresponding PE is 44x, 31x and 22x respectively. The company's technical renovation and technical measures projects have yielded benefits one after another, and remarkable results have been achieved in product structure adjustment. As an important antibiotic production base in China, it will continue to benefit from primary health care expansion and maintain the "recommended" rating.