Bank of America Merrill Lynch drastically raised the profit forecast for Lianhua (00980-HK) last year, from 9 million yuan to 27 million yuan. The bank upgraded the rating of Lianhua supermarket from “outperforming the market” to “buy”, and raised the target price from 4 yuan to 5.3 yuan, which is equivalent to 1.4 times the market account rate. The bank is so aggressive because the promotion of state-owned enterprise reform will become a catalyst for Lianhua Supermarkets in the next 12 months. The possibility of mixed ownership and introduction of strategic shareholders is not ruled out, which means it is likely to trigger re-ratings and bring synergies to profits. Furthermore, although Lianhua supermarket is one of the top five food retailers in China, its current corporate value to revenue multiplier is only 0.1 times that of its peers, far less than 0.5 times that of its peers, its market account ratio is only 1 times, and the net asset value discount margin has reached 42%. It is believed that the valuation has overreflected pessimistic factors.