Lu Feng Co., Ltd. achieved revenue of 1.02 billion yuan in 2010, an increase of 30.84% year on year; net profit belonging to the parent company was 36.52 million yuan, up 13.4% year on year; equivalent to earnings of 0.50 yuan per share, which is in line with our expectations and rapid reports. Among them, earnings per share were 0.15 yuan in the fourth quarter, up 43% from the previous quarter. The company plans to pay a cash dividend of 1 yuan (tax included) for every 10 shares, and use capital reserves to increase share capital, and increase 10 shares for every 10 shares. Positive: Gross margin rose markedly in the fourth quarter. The company's gross margin increased 4 percentage points month-on-month to 16.3% in the fourth quarter. The main reason is probably due to a decline in the share of revenue from aluminum foil trade. Negative: 1) The management fee rate increased month-on-month. The company's management expenses increased 65% month-on-month in the fourth quarter, causing the management expenses ratio to increase by 1 percentage point to 4.1% month-on-month. 2) An increase in the effective tax rate. The company's effective tax rate increased by 5 percentage points month-on-month to 28.2% in the fourth quarter. Development trend: 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 drives demand for Tetra Pak packaging, with the potential additional demand for food aluminum foil adding 705,000 tons, or the compound average growth rate of aluminum foil packaging to reach 31%; in terms of pharmaceutical packaging, with the rapid development of the pharmaceutical market and the replacement of aluminum foil packaging with other traditional packaging materials, we expect the pharmaceutical aluminum foil packaging market to grow at a compound average growth rate of 25%-30% in the next ten years. The release of new production capacity will boost the company's future performance. The company's production capacity includes 80,000 tons of aluminum foil and 50,000 tons of aluminum strip. In addition, the company plans to build 450,000 tons of high-precision aluminum strip and 100,000 tons of high-precision aluminum foil projects. Among them, the 50,000 ton aluminum strip project is expected to be put into operation at the beginning of this year, while Runfeng is expected to start production of 50,000 tons of aluminum foil in the middle of the year, and the headquarters is expected to start production of 30,000 tons of aluminum foil by the end of the year. We believe that the gradual commissioning of aluminum strip and aluminum foil projects will not only help the company extend the upstream industrial chain, but also help expand the company's market share and boost the company's future performance. Valuation and recommendations: We lowered our 2011/2012 earnings per share to 0.98/1.57 yuan, corresponding to the 2011/2012 price-earnings ratio of 39/24 times, to reflect the slower pace of production capacity release than originally anticipated. The company's stock price may remain volatile in the near future, but if production capacity is successfully released later, it will significantly improve performance, provide a catalyst for future stock prices, and maintain a prudent recommendation rating. Risk: Production capacity under construction cannot be put into operation as scheduled.