The 2011 results fell short of expectations: Lu Feng Co., Ltd. achieved revenue of 1,791 billion yuan in 2011, up 75.3% year on year; net profit attributable to the parent company was 11.82 million yuan, equivalent to earnings of 0.08 yuan per share. After deducting non-recurring profit and loss, earnings per share were 0.05 yuan, down 80% year on year, lower than our and market expectations. The loss per share in 4Q was 0.03 yuan, mainly due to insufficient business volume and a sharp increase in financial expenses. Comment: 1) Revenue declined month-on-month. Due to the weak overseas economy in the fourth quarter and the domestic aluminum foil market yet to be developed, the company's aluminum foil sales declined. Coupled with the month-on-month decline in aluminum prices, the company's main business revenue fell by 23.2%. 2) Operating profit declined significantly from month to month. On the one hand, the company's construction of a new aluminum foil production line is progressing slowly, and depreciation and amortization resulting from the commissioning of production increases the unit production cost of the product; on the other hand, the company is currently constructing the first phase of the 450,000 ton high-precision aluminum strip project. The funding sources are mainly bank loans and financial leases, and financial expenses have increased dramatically. The two factors combined to cause an operating loss of nearly 10 million yuan in the fourth quarter. 3) Government subsidies reduce losses. The subsidiary Lu Feng Xinheng received a government subsidy of 3 million yuan in the fourth quarter, equivalent to a loss reduction of about 0.02 yuan per share. Development trend: Demand for household and medicinal aluminum foil is growing relatively slowly. Due to the recent weakening of fundamentals at home and abroad, demand for aluminum foil at home and abroad has been affected to varying degrees; on the other hand, the promotion of household and medicinal aluminum foil applications requires an increase in consumers' environmental awareness and living standards, and it will still take a long time to replace plastic wrap and disposable lunch boxes, so demand for household and medicinal aluminum foil will grow relatively slowly for some time to come. The release of production capacity for new projects is progressing slowly. Affected by the slow growth in downstream demand, the 50,000-ton aluminum foil project that the company has completed and put into operation is progressing slower than expected, and the commissioning plan for the 30,000 ton aluminum foil project under construction also depends on market demand. If the capacity utilization rate continues to be low, the increase in unit production costs due to the cost of commissioning and conversion will have a drag on performance. The fixed increase, if successful, will ease the debt burden. The company is currently promoting a non-public offering project to raise capital for the first phase of the cold-rolling part of the 450,000 ton aluminum strip project. If successfully issued, interest costs will be drastically reduced and the performance burden will be reduced. However, the construction cycle of the 450,000-ton aluminum strip project is expected to be 24-30 months, and its contribution to performance is limited in the short term. Valuation and suggestions: In view of weak downstream demand, the increase in the company's capacity utilization rate, and financial expenses hampering performance, we lowered our 2012 E/2013E earnings per share to 0.05 yuan (-38%) and 0.06 yuan (-50%), corresponding to the 2012 E/2013 E price-earnings ratio of 250/199 times. The company's valuation level is high, fundamentals have not improved, and it remains cautious. Risk: Downstream demand growth is lower than expected, and capacity construction and release are slower than expected.