In the first half of 2015, the company realized operating income of 4.13 billion yuan, an increase of 0.42% over the same period last year, and its net profit was 224 million yuan, down 10.63% from the same period last year. Fully diluted earnings per share was 0.12 yuan. The performance was basically in line with our expectations, with net profit of 223 million yuan deducted from the same period last year, down 11.10% from the same period last year. We maintain our 2015-17 forecast of fully diluted earnings per share of $0.25,0.26 and $0.27, lowering the target price to $8.50, corresponding to 34 times 2015 P / E and maintaining the holding rating.

Support the main points of rating

New stores erode profits: in the first half of 2015, the company achieved revenue of 4.13 billion yuan, an increase of 0.42% over the same period last year, and a net profit of 224 million yuan, down 10.63% from the same period last year, of which the department store business reached 2.637 billion yuan, an increase of 3.26% over the same period last year. The revenue of the supermarket business reached 415 million yuan, down 0.35% from the same period last year, and the revenue of the electrical appliance business was 698 million yuan, down 11.39% from the same period last year. Quarterly analysis showed that revenue in the second quarter was 1.89 billion yuan, an increase of 5.22% over the same period last year, and net profit was 106 million yuan, down 7.5% from the same period last year.

The gross profit margin decreased by 0.37 percentage points year-on-year, and the expense rate increased by 1.02 percentage points over the same period last year: in terms of gross profit margin, the company's comprehensive gross profit margin during the reporting period was 19.42%, a decrease of 0.37 percentage points over the same period last year. The gross profit margin of department stores, supermarkets and electrical appliances business changed by-1.23%,-0.57% and 0.45% to 16.73%, 9.24% and 12.68%, respectively. In terms of period expense rate, the company's expense rate during the reporting period increased by 1.02 percentage points year-on-year to 9.66%, of which sales, management and financial expense rates changed by 0.36%, 0.50% and 0.15% to 5.29%, 3.91% and 0.46%, respectively. The increase in expense rate during the period mainly comes from the increase in labor costs such as new stores, amortization of long-term prepaid expenses, amortization of intangible assets, advertising promotion fees, taxes and other expenses.

An industrial fund was set up during the reporting period, mainly focusing on medical services, in vitro diagnostic services or products, medical big data-related applications, appropriate investment opportunities for private placement of excellent medical listed companies and appropriate Internet investment, as well as investment opportunities for Internet applications in the medical field. Through the professional investment institutions of equity investment, the company can participate in the industrial investment and layout at a deeper level, and reserve potential M & A targets for the company, which will help the company to expand its foreign investment and speed up the layout of industrial upgrading.

Main risks faced by rating

The new store is nurturing more than expected.

Valuation

During the reporting period, the company set up an industrial fund, which mainly focused on the medical and Internet areas, which helped the company to speed up the pace of overseas investment and speed up the layout of industrial upgrading. We maintained a forecast of 2015-17 fully diluted earnings per share of 0.25,0.26,0.27 yuan. The target price was lowered from 9.50 yuan to 8.50 yuan, corresponding to 34 times 2015 price-to-earnings ratio.