Main points of investment:

Wenfeng shares disclosure announcement, the company's largest shareholder Wenfeng Group will reduce some of the shares, part of the funds will be invested in emerging industries, once the development project is profitable, Wenfeng Group promised to give priority to the project into the company to support the growth and development of the company. The specific elements of this transfer include: (1) the object of transfer: Ms. Zheng Suzhen and Ms. Lu Yongmin, the natural persons, and there is no concerted action relationship between them; (2) the quantity of transfer: 110 million of the company's unlimited sale of tradable shares (accounting for 14.88% of the total share capital), a total of 220 million shares; (3) the transfer price: 863500000 yuan respectively, equivalent to 7.85 yuan per share (regardless of the relevant taxes) (4) there is no restricted transfer of the shares transferred this time, no special conditions are attached, and the parties to the agreement have not made other arrangements for the exercise of the voting rights of the shares. After the completion of this transfer, Wenfeng Group holds 35.51% of the shares of the company, and Nantong Xinyoufei Hotel Co., Ltd. holds 10.21% of the shares of the company, with a total shareholding of 45.72%, which is still the largest shareholder of the company.

The equity transfer can be regarded as a strategic reduction of major shareholders. The shares held by Wenfeng Group and Xinyoufei Hotel, the controlling shareholders of the company's initial public offering shares, were lifted on June 3, 2014. This equity transfer is the first large-scale reduction made by major shareholders after the lifting of the ban on IPO restricted shares (about 6 million shares in the third quarter), and we judge it to be a strategic reduction.

The reasons are as follows: (1) the major shareholders themselves are rich in assets and abundant cash reserves; (2) under the situation that both retail and real estate business growth has ushered in a bottleneck, listed companies need the support of major shareholders for new business transformation; (3) before this transfer, the total shareholding ratio of major shareholders is as high as 75.49%, the social public stock ratio is on the low side, and the promotion space of major shareholders is limited. Major shareholders can acquire cash by transferring stock shares, which can cultivate emerging industries outside the system and give priority to the company when it matures. We expect that "emerging industries", including the Internet, are in line with the policy to encourage multiple directions of the industry.

The valuation space of the company is expected to open. At present, the company's stock price is about 16 times the PE of the main retail business in 2014, and less than 15 times if the contribution of real estate is taken into account, which is about the median of the industry. The transaction itself does not change the company's operation and intrinsic value, but the company is expected to benefit from the future "emerging" business reset. We expect that at that time, the transaction structure will be beneficial to the listed companies, or form coordination with the listed companies in business, promote the upgrading of the company model, and form the effect of 1: 1 > 2, and the company valuation is expected to open up.

Maintain the "overweight" rating. To maintain the profit forecast, it is estimated that the EPS from 2014 to 2016 will be 0.55, 0.60, 0.65 yuan respectively, excluding the income from real estate projects. While maintaining the momentum of positive extension expansion, the company ensures the stability of overall income, cash flow and dividends by improving management efficiency and settling real estate projects. We are still optimistic about the advantages of the company's "margin of stock price safety (valuation, self-owned property, etc.) + main business reserve project to contribute future flexibility". The strategic reduction of major shareholders will hopefully open the upward space for the company's valuation, and it is suggested that we should pay active attention to it.