The company's recent situation

Yonghui Supermarket transferred all of its 237 million Lianhua supermarket shares (21.17% shares) to Shanghai Yiguo at a price of HK$4.01 per share.

Shanghai Yiguo is one of the leading e-commerce operators for fresh products in China. Companies such as Alibaba, Suning, and KKR Group are the main investors in Shanghai Yiguo.

In the first half of 2016, the number of inventory units (SKUs) of Shanghai Yiguo fresh products reached about 4,000, and the average number of daily orders exceeded 50,000.

reviews

There are potential synergies between operations and O2O businesses. Yonghui Supermarkets invested in Lianhua Supermarkets in 2014. However, the improvement in Lianhua supermarket's operations fell short of expectations. In fiscal year 2015 and the first nine months of 2016, Lianhua supermarkets experienced net losses of 497 million yuan and 188 million yuan respectively. We will pay close attention to whether Shanghai Yiguo can help Lianhua supermarket advance management reform and O2O business development through its management and e-commerce capabilities.

The valuation was greatly discounted. The company's current stock price corresponds to 0.1 times the 2016 market sales rate. The company's net cash reached 8.3 billion yuan, 185% higher than its market value. The share transfer price is 37% higher than the company's current stock price.

The high CPI environment is expected to boost supermarket operators' same-store sales growth in 2017.

Valuation recommendations

Maintaining the “Recommended” rating and the target price of HK$4.27, there is 46% upside compared to the current stock price.

risks

The reforms fell short of expectations.