1H21 performance is basically in line with our expectations.

The company announced its results for the first half of 2021: 1H21 revenue 13.238 billion yuan, year-on-year-5.7%; return to the mother net profit 20.08 million yuan, year-on-year-65.6%, corresponding to 0.02 yuan per share, basically in line with our expectations.

Trend of development

1. Under the influence of the high base in the same period last year, the revenue of the super-business format was under pressure, and the performance of the convenience store division turned around compared with the same period last year. Revenue fell 5.7% in the first half of the year, which was under pressure under the influence of the high base revenue of merchant supermarkets in the same period last year, among which large comprehensive supermarkets and supermarkets were affected more obviously. in the first half of the year, the revenue of the two businesses reached 72.5 / 5.1 billion yuan, respectively, compared with the same period last year), and same-store sales fell by 9.6% and 8.3% respectively. We expect that the change in residents' propensity to consume after the abatement of the epidemic and the reduction of group buying in the corporate community will affect the revenue performance of supermarkets. In addition, the convenience store business 1H21 achieved revenue of 791 million yuan (year-on-year + 0.4%), same-store sales + 33.0% year-on-year, achieving a year-on-year turnround in segment performance, mainly because the company combed loss-making online stores, streamlined personnel and integrated the supply chain. In terms of exhibition stores, the number of large-scale general supermarkets remained unchanged in the first half of the year; the number of supermarkets increased by 40 to 2171, of which direct stores and franchises increased by 23 respectively; and convenience stores increased by 67 to 943. 2. The promotion efforts and the ambassador's gross profit margin are under pressure, and the expense rate remains basically stable. The gross profit margin in the first half of the year also fell by 2.2ppt to 12.2%, mainly due to increased promotion efforts by the company. On the expense side, the rate of sales expenses increased by 0.7ppt to 17.6%; the rate of management expenses increased by 0.2ppt to 3.2%; and the share of other operating expenses in income decreased by 0.51ppt to 0.03%. While increasing subsidies, the company negotiated with suppliers to increase promotional subsidies, investment revenue increased under the relief of the superimposed epidemic, and other income increased by 18.4% to 1.14 billion yuan. Under the combined influence, the net interest rate for the first half of the year was-0.3ppt to 0.2% compared with the same period last year.

3. Pay attention to the effectiveness of the company's follow-up business transformation and upgrading. 1) Category planning and private brand: the company plans to efficiently integrate the supply chain to speed up the introduction of new products and the elimination of old products; actively promote the construction of its own brand, focusing on creating brand series such as "Lianhua quality" and "excellent dinner". Promote your own brand in the supermarket first. 2) operational efficiency improvement: the company reduced the number of employees by 7% in the first half of the year, while continuing to promote store partnership projects. Partner stores will pilot the "internal and external hosting" model on the basis of the "strong store & category fission" model; 3) Digital upgrade: the company will gradually improve the performance capability of stores through the development of digital store system and the implementation of projects such as one product and one code, and the effectiveness of subsequent business adjustment changes should be continuously tracked.

Profit forecast and valuation

The forecast of earnings per share for 2021-22 remains unchanged, and the current share price corresponds to 0.03 times Pamp S in 2021 / 2022. Considering the increased competition in the industry and the pressure on offline retail, the target price will be reduced by 10% to 1.11 yuan. Considering that the company's PUBG S valuation is at a historically low level, it temporarily maintains an outperforming industry rating. The target price corresponds to 0.04 pesos in 2021 / 2022, with 19% upside space.

Risk.

The competition in the industry intensified; the epidemic situation repeatedly exceeded expectations; the effect of format adjustment and upgrading was not as good as expected.