1. Incidents In 2013, the company achieved operating income of 12716.4568 million yuan, a decrease of 1.53% over the same period last year, operating profit of 74,5192 million yuan, an increase of 200.90% over the same period last year, and net profit attributable to shareholders of listed companies of 24.6693 million yuan, an increase of 126.41% over the same period last year. Earnings per share were $0.0592. 2. Our analysis and judgment strengthened gross margin control and strengthened cost control prompted the company to reverse losses: 2013 operating income decreased by 1.53% year on year. The main reason for the decline in main business revenue was the decline in sales revenue from comparable old stores in some regions, and sales growth was slow during the period of new store development. Among them, the sales revenue of stores in the South China region declined sharply year on year. The company raised its gross profit level through measures such as continuously deepening category management reforms to improve the product structure; optimizing poster selection to increase the gross profit margin of promotional products; optimizing procurement channels and reducing product procurement costs. The overall gross margin increased 0.69 percentage points year-on-year during the reporting period. Through measures such as optimizing the organizational structure and staffing, process optimization, energy saving and consumption reduction, rent cost reduction, and innovative loss prevention and control, etc., cost control has continued to be strengthened to improve labor efficiency, and the sales expense ratio has decreased 0.3 percentage points from the previous year. The management fee ratio and financial expense ratio were basically the same, and the net sales interest rate increased 0.9 percentage points to 0.2 percent over the same period last year. The company's 2014 annual business plan: open about 10 new stores and strive to achieve a steady increase in operating income and net profit attributable to shareholders of listed companies. The pace of opening stores is slowing down, and existing stores are being strengthened through continuous adjustments. In 2013, the company implemented a business strategy of “deceleration, adjustment, consolidation and improvement”, continued to maintain a moderately slow pace of new store expansion, and continued to optimize the store network. During the reporting period, 10 new stores were opened, with a total area of 206,600 square meters; two stores, Shenzhen Seaside Store and Heping Lake Store, were closed due to owners' cancellations and long-term store losses. By the end of the reporting period, the company had entered more than 30 cities in 10 provinces (autonomous regions/municipalities directly under the Central Government) and opened 128 stores, covering an area of more than 1.9 million square meters. To strengthen the management of fresh products, the household appliances and knitting categories were greatly affected by the impact of e-commerce: there was no major change in the sales share of various categories during the reporting period; the sales share of the two categories of food and fresh products increased slightly compared to the previous year, reaching 54.58%; the household appliances and knitting categories were greatly affected by the impact of e-commerce, and sales revenue declined significantly from the previous year. In 2013, on the basis of the reforms implemented in vegetable commodity management earlier, the company continued to comprehensively push forward the fresh product management reform, expand the scope of its own fresh business, strengthen the connection between base development and agricultural supermarkets, and promote centralized processing and unified distribution of cooked food center stores and central kitchen construction, so as to enhance the competitive advantage of fresh products and give full play to the customer attraction function of fresh products. At the same time, in order to strengthen the management of fresh products and achieve centralized sorting, processing, and distribution of fresh products, construction of room temperature warehouses (No. 2 warehouses) and fresh warehouses at distribution centers in Xi'an and Tianjin was initiated. Accelerate the construction of distribution centers. The company has four operating regions: South China, Northwest China, Southwest China, and North China. In order to meet the development needs of the region, the company has invested in the construction of four major logistics distribution centers: Guangzhou, Chengdu, Xi'an and Tianjin. Currently, the Guangzhou distribution center has been put into use, and the remaining three distribution centers are all under construction. It is expected that Chengdu will invest in 2014, Xi'an next year, and Tianjin later. The commissioning of logistics distribution centers will help the company solve the shortage rate, reduce losses and costs, and improve operating efficiency. Xi'an, Nanning, and Chengdu remain the company's main profitable subsidiaries: during the reporting period, the Xi'an, Nanning, and Chengdu subsidiaries had total sales revenue of 5.712 billion yuan, accounting for 45% of total revenue, and a total net profit of 310 million yuan. Total operating income and net profit increased 4.82% and 13.6% year on year. All other subsidiaries, with the exception of the Xianyang subsidiary, are losing money. 3. Investment advice. The two principles of commercial chain management reduce costs for intensive store opening, increasing economies of scale and improving logistics, distribution, and warehousing. The South China area of the company has drastically broken away from the company's performance in the past two years due to industrial transfer, a decrease in the number of migrant workers, and intense industry saturation and competition. At the same time, the South China, Northwest China, Southwest China, and North China fronts are too long, so it has not developed a scale or brand advantage in the short term. On the one hand, the company strengthens fresh commodity management, promotes direct procurement of agricultural product bases, enhances the competitive advantage of fresh products, and increases the customer attraction effect; on the other hand, it optimizes commodity structure and category management, and implements more targeted cost control measures to increase gross margin, reduce costs, etc., and reverse losses. The company's next step is to consolidate and enhance its dominant position in the Xi'an, Nanning and Chengdu regions, and at the same time close long-term loss-making stores that have not improved to stop bleeding points. The company still adopts the business strategy of “deceleration, adjustment, consolidation, and improvement”. The number of stores expected to open in 2014 is 10, the same as in 2013. The company's EPS for 14-16 is expected to be 0.13, 0.21 yuan, and 0.27 yuan, respectively, and 79.9, 48.6, and 37.8 times for PE. We gave the company a neutral rating.